If you’re thinking about purchasing a home, you’ve probably heard that an FHA loan (backed by the Federal Housing Administration) is worth exploring. These government-backed loans are especially popular with first-time homebuyers, because they have lower down payment requirements than many conventional loans and less stringent borrowing criteria.
But did you know there are several different types of FHA loans and programs designed to make homeownership accessible to more Americans? The FHA offers a wide variety of options, from traditional home mortgages to loans meant to help homeowners refinance; repair and renovate; improve their home’s energy efficiency; or tap their home equity for retirement income.
Read on for a look at some of the many available options.
Table of Contents
Key Points
• FHA loans are government-backed mortgages available from private lenders.
• These loans offer low down payments and less stringent credit standards for homebuyers, and are especially popular with first-time buyers.
• Key types of FHA loans include the 203(b) for purchases and the 203(k) for renovations, alongside various refinancing options.
• Loans are subject to annual, region-specific limits.
• Specialized FHA programs like the EEM (Energy Efficient Mortgage) and HECM (Home Equity Conversion Mortgage) cater to those with distinct home financing needs.
What Is an FHA Loan?
FHA loans are mortgages that are provided by private lenders but are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). This means that if a borrower defaults on an FHA loan, the FHA will reimburse the lender for the loan’s unpaid principal balance.
Because lenders are taking on less risk when they fund an FHA loan, they can offer different types of FHA loans to borrowers who might otherwise struggle to qualify due to low credit scores or because they can’t save enough for a big down payment. Borrowers also may be eligible for lower closing costs or other benefits.
If you’re considering an FHA loan, here are some helpful basics to know:
FHA Loan Eligibility
FHA loan requirements can vary by lender and by the type of FHA loan, but generally you can expect underwriters to look for a 580 credit score with a minimum down payment of 3.5%. Some lenders prefer a minimum score of 600. If you can make a larger down payment — at least 10% — you may be able to qualify with a lower credit score (in the 500 to 579 range), but your interest rate and other terms you’re offered may be less favorable. The FHA allows your down payment to be a gift from a family member, friend, charity or other source, but the money will need to be documented with a gift letter.
There isn’t a set income requirement to qualify for an FHA mortgage, but lenders will ask for documentation of your income sources. They also will consider your debt-to-income (DTI) ratio, which compares your monthly debt payments with your monthly gross income. FHA guidelines generally allow a DTI ratio up to 43%, but if you have a strong credit score and meet other requirements, some lenders may accept a DTI ratio of up to 50% on an FHA loan.
FHA loans have occupancy rules regarding the size of the residence and how it is used. And FHA borrowers must pay mortgage insurance — both an upfront premium and an ongoing annual premium.
FHA Loan Limits
The FHA sets new guidelines each year for the maximum amount you can borrow based on housing costs and the cost of living in your region. The value of the property you plan to purchase (as determined by your appraisal) must fall within these specific limits.
HUD maintains a searchable database on its website where you can look up loan limits for specific areas. The following are the 2025 limits in most areas of the U.S.:
• Single-unit property: $524,225
• Two-unit property: $671,200
• Three-unit property: $811,275
• Four-unit property: $1,008,300
Limits in higher-cost areas can range from $1,209,750 (for a single-unit property) to $2,326,875 (for a four-unit property). In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, limits range from $1,814,625 to $3,490,300.
Types of FHA Mortgage Loans
The FHA insures several different types of loans, including the popular Section 203(b) Basic Home Mortgage Loan that many homebuyers use to purchase their primary residence. Here’s a list of loan options you may want to consider:
FHA 203(b) Loan: Standard Home Purchase
This is the FHA’s main home loan program, and it’s similar to a conventional mortgage. Borrowers can choose among different loan terms, up to a 30-year term, and must also decide whether they prefer a fixed or adjustable interest rate. To qualify, the home must pass strict HUD appraisal standards.
FHA 203(k) Loan: Rehab and Renovation
By now, you’ve probably seen enough renovation TV shows to know that you can often find a more affordable home if you’re willing to make some improvements. The FHA’s standard and limited 203(k) rehabilitation mortgages can be used to help homebuyers and current homeowners finance those repairs and improvements. The renovation expense with an FHA 203(k) loan must be a minimum of $5,000, and the home must be at least a year old.
Recommended: FHA 203(b) Loans vs. FHA 203(k) Loans
FHA Streamline Refinance
An FHA streamline refinance is a refinancing option that’s available only to borrowers with an existing FHA loan. It’s referred to as “streamlined” because the underwriting process is limited compared to a standard mortgage refinance. (A home appraisal usually isn’t required, for example.) Eligibility requirements may be stricter, however, if the refinance will lower the borrower’s mortgage payment by more than 20%.
FHA Cash-Out Refinance
With an FHA cash-out refinance, eligible homeowners can get a new, larger mortgage that’s insured by the FHA, use it to pay off their existing mortgage, and receive the balance that’s left over as a lump sum of cash.
You can use money from a cash-out refinance for just about any purpose, including to pay down debt or to fund a remodel. With an FHA cash-out refinance, you may be able to borrow up to 80% of the property’s appraised value. And unlike the streamline refinance, you can do an FHA cash-out refinance no matter what type of mortgage you currently have.
FHA Energy Efficient Mortgage (EEM)
With the EEM program, a borrower can use an FHA-insured mortgage to purchase or refinance a principal residence plus get help covering energy efficient improvements that could help lower the home’s utility bills. In the past, there were tax credits that helped homeowners fund the energy-efficiency improvements, but these credits end on December 31, 2025, However, the EEM program continues.
The FHA loan can be used to cover materials, labor, inspections, and a home energy assessment by a qualified energy assessor. But there are restrictions on how much you can borrow for the updates, and the improvements to be made must be approved by a qualified assessor or home energy rater.
FHA Reverse Mortgage (HECM)
An FHA home equity conversion mortgage (HECM) is an FHA-insured reverse mortgage that allows borrowers 62 and older to tap into a portion of their home equity to get tax-free income. The monthly payments borrowers receive through a reverse mortgage can then be used to help cover medical bills, home maintenance, or other general living expenses.
The amount available for withdrawal is based on:
• The age of the youngest borrower or eligible nonborrowing spouse;
• The current interest rate; and
• The appraised value, the HECM FHA mortgage limit, or the sales price — whichever amount is lowest.
When the borrower moves out, sells the home, or passes away, the loan must be repaid.
How to Choose the Right FHA Loan
If you aren’t sure which type of FHA mortgage loan loan would be best for your needs, it may be helpful to speak with a HUD-approved housing counselor. You can use the search tool on the HUD website to find a participating housing counseling agency near you.
A qualified mortgage professional with an FHA-approved lender (like SoFi) can also provide you with information about the various types of FHA mortgage loans, as well as the pros and cons. And you can go online to further research the type of loan you want and the lenders who offer those programs or products.
The Takeaway
An FHA mortgage has long been a popular option for first-time homebuyers who are looking for a basic home loan. But homeowners who want to refinance their current mortgage, improve their property, or turn their equity into income may also benefit from different types of FHA mortgage loans. Working with a trusted lender, you can find an FHA loan that makes the most sense for your budget and financial goals.
SoFi offers a wide range of FHA loan options that are easier to qualify for and may have a lower interest rate than a conventional mortgage. You can down as little as 3.5%. Plus, the Biden-Harris Administration has reduced monthly mortgage insurance premiums for new homebuyers to help offset higher interest rates.
FAQ
What is the most common FHA loan?
The most commonly used FHA loan is the FHA 203(b) loan, which could make it possible to purchase a primary residence even if your credit is so-so or you don’t have a large down payment saved up.
Can I use an FHA loan for home improvements?
Yes. An FHA 203(k) loan can be used by homeowners and homebuyers who want to make major renovations to a property. But depending on your specific circumstances, you might also consider other FHA loans (a 203(b) mortgage, a reverse mortgage, or a refinancing option) to help pay for improvements.
What’s the difference between FHA 203(b) and FHA 203(k) loans?
The FHA 203(k) rehabilitation mortgage insurance program was created to assist homebuyers and homeowners who have a property that’s in need of substantial renovation or remodeling, while the 203(b) loan is typically used to purchase a move-in ready home or one that may not require such significant repairs.
Who qualifies for an FHA streamline refinance?
To qualify for an FHA streamline refinance, the existing mortgage must be FHA insured and it can’t be delinquent. The term “streamline” refers to the amount of documentation required and level of underwriting the lender must perform, which is usually minimal compared to some other loans.
Are there income limits for FHA loans?
FHA loans do not have maximum or minimum income limits. Still, you can expect lenders to request documentation of your income sources.
How do FHA reverse mortgages work?
An FHA-insured reverse mortgage allows borrowers 62 and older to tap into a portion of their home equity to get tax-free income. The loan must be repaid when the borrower sells the home, moves out, or passes away.
Photo credit: iStock/ferrantraite
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