Your guide to FHA loans

Applying for a home loan is an exciting first step toward homeownership, and understanding your loan options can help you determine which loan is right for your financial goals. One popular choice is an FHA loan, a home loan backed by the Federal Housing Administration. Let’s look at how they work and what goes into applying for one.

What is an FHA loan?

An FHA loan is a mortgage loan insured by the Federal Housing Administration. These loans are similar to other mortgage options, with a few exceptions. Homebuyers can get an FHA loan with as little as 3.5% down, making these loans an appealing option for first-time homebuyers or anyone looking for a low down payment opportunity.

In addition, many buyers find the lending requirements less restrictive than other types of loans. While the Federal Housing Administration insures these loans, they’re not a mortgage lender. Only FHA-approved lenders can provide FHA loans.

Are there FHA loan limits?

FHA loans do have borrowing limits based on the area where the home is located. For 2025, the FHA borrowing limits range from $524,225 for a single-family home in most areas and up to $1,209,750 for properties in high-cost areas.fha-mortgage-limits-list-hud These limits are lower than those for the Federal Housing Finance Agency (FHFA) conventional loans limits, which currently allow borrowers to access up to $806,500 for a single-family home.fhfa-conforming-loan-limit-values FHA loans do not have income limits, unlike some conventional loan products.

FHA vs. Conventional Loan

Here's a side-by-side comparison to help you understand the differences between FHA and conventional loans.

FHA Loan

• Minimum credit score: 580 with less than 10% down, 500 with 10% or more down.hud-handbook-borrowers-credit-score
• Maximum DTI allowed: 43%.hud-handbook-borrowers-credit-score
• Minimum down payment allowed: 3.5% for all loans.hud-loans-buying
• Single-family loan limit: $524,225.fha-mortgage-limits-list-hud

Conventional Loan

• Minimum credit score: 620.
• Maximum DTI allowed: 36%.
• Minimum down payment allowed: 3% for some income-based loans.
• Single-family loan limit: $806,500.fhfa-conforming-loan-limit-values

What types of FHA home loans are available?

There are several FHA loan options available that borrowers can take advantage of.

FHA 203(k) loans

Referred to as FHA rehabilitation loans, these loans allow homebuyers and homeowners to draw money to put toward repairs and renovations on a property. FHA 203(k) loans allow homeowners to borrow up to $35,000 with a Limited 203(k) loan and more than $35,000 with a Standard FHA 203(k) loan.hud-rehab-mortgage-insurance-types For both loans, the minimum they can borrow is $5,000.hud-rehab-mortgage-insurance-types Chase does not offer FHA 203(k) loans at this time.

FHA Good Neighbor Next Door

The Good Neighbor Next Door loans are mortgages specifically designed to help law enforcement officers, teachers (pre-K through 12th grade), firefighters and emergency medical technicians (EMTs) to buy foreclosed homes in designated revitalization areas at up to 50% off the list price.good-neighbor-nextdoor-program If you’re interested in this program, you’ll need to work with a U.S. Department of Housing and Urban Development (HUD)-registered broker.good-neighbor-nextdoor-program

FHA rate and term refinance

Like most mortgage loans, the FHA allows current FHA loan holders—as well as conventional loan holders—to refinance their current mortgage into a new FHA loan,refinance-hl000061refinance-hl000061 usually with either 30-year or 15-year terms.

FHA cash-out refinance

If you want to borrow against your existing home equity, FHA cash-out requirements allow borrowers to take cash out for a loan-to-value (LTV) ratio of up to 80%.hud-refinance-hb-general-eligibilityhud-refinance-hb-general-eligibilityhud-refinance-hb-general-eligibility

FHA Streamline Refinance

If you already have an FHA loan, you can refinance your mortgage using an FHA Streamline Refinance. This allows you to refinance your current FHA mortgage to a new loan. FHA Streamline Refinances can help you to get a better interest rate on a new loan and may be available to borrowers even if they’re underwater on their current mortgage.

What are the benefits of an FHA home loan?

When you consider home financing, you want to ensure you get it right. The first step is choosing the right type of loan. So how do FHA loans work, and how do they compare to traditional home mortgages?

• Lower down payment: FHA loans require as little as 3.5% down.fhfa-conforming-loan-limit-values For borrowers who may not have funds to put toward a large down payment, an FHA loan can be a good fit.
• Ability to use state housing finance authority (HFA) programs: FHA loans also permit the full down payment to come from grants offered by state HFA programs, as well as private grants and gifts from family members. 
• Less restrictive qualification requirements: Not everyone has perfect credit, but this doesn’t necessarily mean you won’t be able to buy a home. FHA loans allow for lower credit scores and a higher DTI. Additionally, there’s typically a shorter waiting period after financial problems, such as bankruptcy or foreclosure.

What are the downsides to FHA loans?

• Lower borrowing limits: Conventional loans allow homebuyers to borrow up to conforming loan limits. FHA loan limits are often lower than conforming loan limits, so depending on what county you’re financing in, you’ll only be able to borrow up to a certain amount. However, in high-cost areas, the FHA loan limits might actually be higher.
• Higher monthly costs: While FHA loans offer competitive interest rates, they still tend to be higher than the potential rates available for a comparable conventional loan. Also, your FHA loan will require a monthly insurance premium (MIP), so you’ll likely see the cost reflected in your monthly mortgage statement.
• More borrowing requirements: FHA loans may require you to fill out additional forms to qualify for a loan. You will also need an FHA-approved appraiser to verify the property meets FHA standards. This may cost more or take additional time, especially compared to automated valuation models (AVM), which are becoming more popular with lenders.

Before you apply for an FHA loan

The first thing you need to do is evaluate your finances. Don't go house hunting just yet. Start with the basics. Look at your income, your bills and the cost of homes in the area you’re interested in. If you know how much you want to spend on a home, plug the numbers into an online FHA loan calculatortools-and-calculator-hl000066tools-and-calculator-hl000066tools-and-calculator-hl000066tools-and-calculator-hl000066 to estimate your monthly mortgage payment.

Once you've looked closely at your finances and know what you can afford, it’s time to reach out to a real estate agent and get prequalified. Not all lenders will offer the same rates or requirements, so it's a good idea to shop around and find the best terms for you.

How to make your FHA mortgage more affordable

FHA loans may offer competitive rates and terms. However, upfront and annual MIP plus closing costs can increase the overall cost of your loan. There are a few things you can do to make your loan more affordable and reduce your monthly payments.

• Shop around: It's a good idea to talk to more than one lender. In some cases, there can be considerable differences in terms offered, which could save you money over the life of your loan.
• Consider a larger down payment: You may not want to pay more out-of-pocket than you need to, but increasing your down payment will reduce your principal and can also reduce your annual MIP.
• Pay down your debt: Lenders typically offer more favorable terms to borrowers they consider lower risk. The lower you can get your DTI ratio, the better off you will be.

Is it a good idea to get an FHA loan?

An FHA mortgage is a great option for borrowers who may not qualify for a conventional home loan. Here are five important questions to ask yourself before deciding:

• Will you be using the home as your primary residence?
• Can you cover the cost of MIP as a part of your monthly mortgage payment?
• Will the price of your home be within FHA loan limits?
• Can you meet the minimum 3.5% down payment requirement?
• Do you have a lower credit score?

If you answered yes to all of these questions, an FHA loan may be a good fit for you.

In summary

Whether it’s a new FHA loan, a refinance or another type of mortgage, there are many factors you should consider before you apply for any type of loan. It might be in your best interest to talk to an experienced Home Lending Advisor about the options available to you.