What is an FHA loan?

In a nutshell

FHA loans are mortgages insured by the U.S. Federal Housing Administration (FHA), and these loans have more flexible qualification requirements than conventional mortgages.

  • Down payments may be as low as 3.5% with an FHA loan.
  • Borrowers with credit scores of 500 could qualify.
  • Upfront and ongoing mortgage insurance premiums (MIPs) are required.

What is an FHA loan?

An FHA loan is a mortgage insured by the U.S. Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD). Because the government insures these home loans, they offer more flexible borrower requirements than a conventional loan. FHA mortgage loans are available for single-family and multi-family properties, and refinance loans are also available.

How does an FHA loan work?

While the FHA might insure these loans, it isn’t a direct lender. Instead, they’re issued through partner lenders. Unlike conventional loans, which can temporarily require mortgage insurance, FHA loan borrowers pay mortgage insurance premiums upfront and over the life of their loan.

FHA loans are popular among first-time and low-to-middle-income homebuyers because these mortgages generally require lower down payments than many conventional loans. Credit score requirements are also more flexible than for conventional loans.

Types of FHA Loans

Several types of FHA loans exist, including purchase and refinance loans. Here are some common FHA loan types.

FHA purchase loans

The FHA offers several types of new purchase loans tailored to low-to-middle-income borrowers. Each mortgage type works slightly differently, so if you’re considering one over another, contact your lender with questions. FHA purchase loans include:

  • Basic 203(b) home mortgage.
  • Condominium mortgages.
  • Adjustable-rate mortgages.

FHA refinance loans

Qualifying borrowers can also refinance their mortgages with an FHA loan. That said, certain refinance options are only available to those with existing FHA loans, including the streamline refinance loans.

  • Simple refinance.
  • Streamline refinance.
  • Cash-out refinance.
  • Limited refinance.

FHA specialty loans

The FHA also offers specialty loans for new construction, rehabilitation or renovation — and reverse mortgages for seniors. These loans include:

  • Rehabilitation 203(k) mortgage.
  • Title I property improvement mortgage.
  • Disaster victim 203(h) mortgage.
  • Home equity conversion mortgage (reverse mortgage for seniors).

FHA loan requirements

FHA loan requirements may vary slightly depending on the type of loan you’re seeking. But requirements for general purchase loans are as follows.

  • Credit score and down payment: Borrowers need a credit score of 500 to 579 to qualify for an FHA loan with a 10% down payment. Those with credit scores of 580 (or higher) can access a lower down payment at just 3.5% of the value of the loan.
  • Debt-to-income ratio: The FHA generally requires a debt-to-income ratio at (or below) 43% to be eligible for a mortgage. However, some exceptions may be granted for borrowers with significant assets and great credit.
  • Property standards: You can’t get an FHA mortgage for a second home or an investment property that’s not your primary residence. The FHA also requires a home inspection to ensure prospective properties meet safety, security and structural soundness standards.
  • Mortgage insurance: With an FHA loan, you’ll need to pay an upfront MIP and ongoing premiums.

Learn more: FHA loan requirements: What you need to know before applying

How to apply for an FHA loan

If you’re interested in applying for an FHA mortgage, you can do so with one of HUD’s partner lenders. You can find a nearby lender by inputting your location and preferred loan type into the HUD Lender List. Comparing a few different lenders is a wise move when applying for a mortgage. Many lenders offer a prequalification option that gives you insight into possible rates and loan amounts, so consider prequalifying to narrow your options. Also, research potential fees and specific lender’s borrower requirements to ensure you make the best choice.

Once you find a lender, you can formally apply for an FHA loan. The process is fairly in-depth, similar to applying for any type of mortgage. Your lender will ask for personal information, including your name, email, Social Security number (SSN) or Individual Tax Identification Number (ITIN), address, phone number, employer, employer’s address and phone number.

You’ll also be required to share financial information, including your income, current debts and information about your savings and other assets. Your lender will also request documentation to verify your identity, address and financial information. Documentation may include copies of:

  • Government-issued identification.
  • Recent utility bill, rent or mortgage statement.
  • Bank statements.
  • Investment account statements.
  • W-2s.
  • Tax returns.
  • Other documents as requested.

FHA loan limits

There are limits on how much you can borrow with a typical FHA purchase loan, but the limits are relatively high. These limits vary depending on whether you live in a low-cost-of-living area or a high-cost-of-living area. The FHA also offers larger loans for qualifying borrowers in certain areas, such as Alaska, Guam, Hawaii and the U.S. Virgin Islands.

For 2024, FHA loan limits for typical purchase loans in low-cost-of-living areas are as follows:

Single-family property $498,257
Two-unit property
Three-unit property
Four-unit property

For 2024, FHA loan limits for typical purchase loans in high-cost-of-living areas are as follows:

Single-family property $1,149,825
Two-unit property
Three-unit property
Four-unit property

If you’re considering an FHA loan, keep in mind that these are loan limits. The actual amount you qualify for will vary depending on your credit history, debt, income and other factors.

FHA mortgage insurance

As mentioned, FHA loans require that you pay mortgage insurance premiums. This is one of the biggest drawbacks of this type of loan. Borrowers must pay an upfront premium of 1.75% of the total loan amount. So, if you qualified for a $300,000 FHA mortgage loan, your upfront premium would be $5,250.

Ongoing mortgage insurance premiums are also required for FHA loan borrowers. Annual premiums range from 0.45% to 1.05%, depending on your loan-to-value ratio and loan amount.


  • Flexible borrowing criteria could make it easier to qualify.
  • Down payments are as low as 3.5% if you meet credit score requirements.
  • Loans are insured by the FHA.


  • Mortgage insurance premiums are required.
  • Not available for investment properties or vacation homes.
  • Ten percent down payment required for borrowers with credit scores in the 500-579 range.

The AP Buyline roundup

FHA loans can help low-to-middle-income borrowers qualify for a mortgage. These loans have flexible credit score requirements and down payment requirements, though borrower criteria can vary depending on the type of FHA loan you’re seeking. While FHA loans have their benefits, the associated mortgage insurance premiums can be costly. You’ll also need to occupy your home as a primary residence to be eligible for an FHA mortgage.

Frequently asked questions (FAQs)

What is the downside to a FHA loan?

While FHA loans have their benefits for borrowers, there are also some drawbacks to be aware of that include upfront and ongoing mortgage insurance premiums, property restrictions and higher down payment requirements for borrowers with credit scores in the 500 to 579 range.

What will disqualify you from an FHA loan?

You can’t use an FHA loan for an investment property or vacation home. The FHA also requires that properties meet minimum standards for safety, security and structural soundness. If the home you’re trying to purchase is in poor condition, you might not qualify for an FHA loan.

What is the maximum amount you can get from an FHA loan?

The maximum amount you can get from an FHA loan depends on where you live. Limits for single-family homes range from $498,257 in low-cost-of-living areas and $1,149,825 in high-cost-of-living areas.

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