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An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the US Department of Housing and Urban Development (HUD). FHA loans are designed to make homeownership accessible to borrowers who may not qualify for conventional financing — particularly first-time homebuyers, those with lower credit scores, or buyers with limited savings for a down payment.

Down Payment Requirements

FHA loans require as little as 3.5% down with a credit score of 580 or higher. If your credit score is between 500 and 579, you will need a 10% down payment. The down payment can come from savings, a gift from a family member, a down payment assistance program, or even a grant. This flexibility is one of the biggest advantages of FHA financing.

Credit Score Requirements

The minimum FICO score for an FHA loan is 500 (with 10% down) or 580 (with 3.5% down). In practice, many lenders set their minimum at 620-640, but FHA guidelines allow lower scores. FHA loans are more forgiving of past credit issues — you may qualify just 2 years after a bankruptcy and 3 years after a foreclosure, compared to 4 and 7 years for conventional loans.

Mortgage Insurance (MIP)

FHA loans require two types of mortgage insurance. First, an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount, which is typically financed into the loan. Second, an Annual MIP of 0.55% for most loans (paid monthly). Unlike conventional PMI, FHA mortgage insurance is required for the life of the loan when you put less than 10% down. With 10% or more down, MIP drops off after 11 years.

DTI Limits

FHA loans allow a maximum DTI of 43% as a general guideline, but borrowers with compensating factors (higher credit scores, significant reserves) can be approved with DTIs up to 57%. This is significantly more flexible than conventional loans. The front-end ratio (housing costs only) is generally limited to 31% but also flexible with compensating factors.

FHA Loan Limits

FHA loan limits vary by county and are updated annually. For 2026, the floor limit is $498,257 and the ceiling is $1,149,825 in high-cost areas. These limits apply to the base loan amount before the UFMIP is added. Check your county's specific limit at the HUD website. If you need a loan above FHA limits, you will need conventional or jumbo financing.

Property Requirements

FHA loans are for primary residences only — no investment properties or second homes. The property must meet FHA Minimum Property Requirements (MPRs), which ensure the home is safe, sound, and secure. Common issues that can fail an FHA appraisal include peeling paint, missing handrails, broken windows, and structural problems. FHA loans can be used for single-family homes, condos (in FHA-approved projects), and 2-4 unit properties.

When to Choose FHA vs. Conventional

Choose FHA when your credit score is below 700, you have limited savings for a down payment, or your DTI is high. Choose conventional when your credit score is 700+, you can put 10% or more down (to avoid permanent MIP), or you are buying a second home or investment property. The break-even point is usually around 680-720 FICO — above that, conventional often wins on total cost.