FHA loan: Requirements, limits and how to qualify
Senior Content Writer
Quick insights
- FHA loans are government-insured mortgages offered by FHA-approved lenders that may have more accessible requirements than some conventional mortgages.
- FHA loan requirements generally include a credit score of at least 580 for a 3.5% down payment or 500-579 for a 10% down payment, though lenders may set higher credit standards.
- Borrowers pay FHA mortgage insurance regardless of the down payment, and typically, the home must meet FHA property requirements.
A smaller down payment doesn’t have to hold back your homebuying plans. FHA loans are government-insured mortgages designed to make buying a home more accessible. FHA loans may require down payments as low as 3.5% and feature credit guidelines that can make homeownership possible for many people.
The Federal Housing Administration (FHA) is a significant insurer of mortgages for families in the United States. While FHA loans are a popular choice for first-time homebuyers, they are open to anyone who qualifies. Read on to learn the requirements, limits and whether an FHA loan aligns with your goals.
What is an FHA loan?
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing AdministrationOpens overlay. This government agency is part of the U.S. Department of Housing and Urban Development (HUD). The FHA doesn’t lend money directly. Instead, its insurance helps protect a lender issuing a mortgage loan if the borrower defaults.
FHA loans are designed to expand access to homeownership by providing certain loan terms, such as low down payment or credit score requirements. This type of loan can be common for first-time homebuyers, but it’s also available to repeat buyers who meet the program and lender requirements.
FHA loan requirements
To qualify for an FHA loan, you’ll need to meet several key requirements set by the Federal Housing Administration. Specific criteria can also vary by lender.
- Credit score and down payment: You’ll generally need a credit score of at least 580 to qualify for the 3.5% minimum down payment. If your score falls between 500 and 579, you may still qualify with a 10% down payment.
- Debt-to-income ratio (DTI): Your lender will review your debt-to-income ratio (DTI), which compares total monthly debt payments (like student and auto loans) with gross monthly income. The standard baseline DTI limits for an FHA loan are typically 31% for the front-end ratio (housing costs) and 43% for the back-end ratio (all debts).
- Income and employment: FHA loans usually do not have income limits, but lenders need to see that you have a consistent monthly income. Lenders typically look for a steady employment record of at least two years. You may need to explain any employment gaps in that time.
- Property eligibility and occupancy: FHA loans are available for multi-unit (1–4) properties, including single-family homes, townhomes, and condos. All types must meet FHA minimum property standards. The home must be your primary residence. FHA loans cannot be used for investment properties or vacation homes.
- FHA-approved lender: Only FHA-approved lenders offer FHA loans, and you can choose which lender you work with. Some lenders offer various FHA loan programs to help borrowers buy or refinance.
How do FHA loans work?
FHA loans can open the door to homeownership for buyers with limited savings or less-than-perfect credit. However, they work like most other mortgage types. Here’s how:
- Compare FHA-approved lenders. Research FHA-approved lenders and compare what they have to offer. The interest rate, loan terms, fees and customer service are worth evaluating.
- Get preapproved. Before you begin house hunting, consider getting prequalified or preapproved for an FHA loan. Mortgage preapproval provides a clearer picture of how much you may be able to borrow and could show sellers that you’re a serious buyer. Your FHA down payment amount can be helpful to estimate at this point. Chase doesn’t offer mortgage prequalification, only mortgage preapproval.
- Explore possible homebuyer assistance. Down payment and closing cost programs may help eligible borrowers reduce their upfront expenses. Use the homebuyer assistance finder to research programs that may be available based on the property location and household information.
- Prepare your documentation. Before you apply for an FHA loan, having what you need for the application can make the next steps smoother. Speak with a Home Lending Advisor or loan officer to understand what documents you’ll need—typically personal identification items (passport, ID, Social Security number, address) and financial documents (proof of income, employment, etc.).
- Submit your application. This can typically be done online or in person. If you require assistance with your application, most lenders have experts who can help walk you through the process. If you got a mortgage preapproval, the application process and required documents should seem familiar.
- Closing. This happens once you’ve found a home and met FHA requirements for the loan and property. As you approach the closing table, review your loan terms in detail. This is the stage when you’re settling on the purchase of your property, which means signing the final paperwork and paying FHA loan closing costs.
How does FHA mortgage insurance work?
FHA loans require two forms of mortgage insurance: an upfront mortgage insurance premium(UFMIP) and an annual mortgage insurance premium (MIP). These costs protect the lender (not the borrower) if you stop making payments.
- Upfront: Your UFMIP is typically 1.75% of the base loan amount. It may be paid at closing or financed into the mortgage, which increases the total amount borrowed.
- Annual: The annual MIP is calculated based on the loan amount, loan term and loan-to-value ratio (LTV). This means annual MIP may change each year, as the outstanding loan balance decreases.
Both types of mortgage insurance can increase your monthly payment. Although it’s called annual MIP, the amount due is generally divided into 12 monthly installments and added to your monthly payment. Plus, if you don’t pay UFMIP at closing, rolling it into your mortgage would increase your monthly payment.
Example: FHA mortgage insurance
Suppose you take out a 30-year fixed-rate FHA loan of $250,000, which is the base loan amount after your down payment.
UFMIP: $250,000 x 1.75% = $4,375
Annual MIP (first year): $250,000 x 0.55% = $1,375
The 0.55% rate kicks in only when your LTV is above 95%. This means a down payment of less than 5% (the common 3.5% minimum-down scenario). If you put down 5-10%, the annual MIP rate drops to 0.50%.
Annual MIP (each month): $1,375 / 12 = $115
What’s the difference between FHA vs. conventional loans?
Here’s how FHA loans and conventional loans compare across some key categories:
Down payment
- FHA loan: Minimum 3.5% down payment with a credit score of 580 or higher, with 10% required for scores between 500 and 579.
- Conventional loan: Down payment requirements vary, typically starting at 3% to 5%, but may require a higher credit score and greater savings.
Credit score
- FHA loan: Minimum credit score of 580 for 3.5% down, and 500–579 for 10% down.
- Conventional loan: May require higher credit scores than FHA, such as 620 or above.
Mortgage insurance
- FHA loan: Requires mortgage insurance for the life of the loan or 11 years, depending on the term and down payment.
- Conventional loan: Requires private mortgage insurance (PMI) if down payment is less than 20%. PMI may be canceled once you reach 20% equity, depending on the lender.
Down payment assistance
- FHA loan: Down payment assistance programs may be available to help borrowers cover upfront costs.
- Conventional loan: May not offer the same level of down payment assistance. You can check local and lender resources for availability.
Debt-to-income (DTI) ratio
- FHA loan: Standard FHA DTI limits are 31% for front-end housing costs and 43% for back-end total monthly debts. In underwriting, a lender may approve loans when DTI is higher.
- Conventional loan: A conventional loan may have a 43% DTI benchmark, depending on the lender. Underwriting can approve higher ratios depending on other factors in the borrower’s profile.
Income and employment
- FHA loan: Typically does not have income limits but may require consistency and explanations of any employment gaps in the last two years.
- Conventional loan: Generally requires steady income and certain length of employment history.
Types of FHA loans
The FHA insures several mortgage programs for different homebuying and home improvement needs. Availability varies by lender, and Chase may not offer every program below.
- Basic home mortgage 203(b): The FHA 203(b) loan is the standard FHA mortgage used to purchase an eligible primary residence. Qualified borrowers may make a down payment as low as 3.5%, and the home must meet certain HUD appraisal standards.
- FHA’s energy-efficient mortgage: The energy-efficient mortgage allows eligible borrowers to finance qualifying energy-efficient improvements as part of an FHA purchase or refinance. A qualified energy assessment generally identifies the improvements and projected savings.
- FHA 203(k) rehabilitation mortgage: The FHA 203(k) loan program combines the cost of purchasing or refinancing an eligible home with funds for qualifying repairs or renovations. Renovation funds are generally held in escrow and released as work is completed.
- Section 203(h) mortgage insurance for disaster victims. This is if the primary residence was destroyed or severely damaged in a presidentially declared major disaster area. Eligible borrowers may qualify for FHA-insured financing to purchase or reconstruct a primary residence. The 203(h) requires no down payment, and the property must have been your primary residence that you were residing in during the disaster. You do not have to finance a home in the same area that you lived in.
FHA loans and related HUD homebuying programs
The Good Neighbor Next Door Program is a HUD homebuying program, not a type of FHA loan. The program allows eligible law enforcement officers, teachers (pre-K through 12), firefighters and emergency medical technicians to purchase qualifying HUD-owned homes in designated revitalization areas for a discount.
In exchange, the homebuyer must agree to use the home as their primary residence for at least 36 months. Eligible properties are limited, and availability may change regularly. Homebuyers may use an FHA loan or another qualifying mortgage to finance the purchase.
FHA loans pros and cons
Buying a home is a major financial commitment and there’s much to consider. Before you choose what type of loan you’ll use, it’s important to weigh the pros and cons. Here are several to consider.
Pros of an FHA loan
- Credit guidelines: FHA requirements may make financing accessible to some borrowers who don’t qualify for certain conventional loans. Individual lender requirements still apply.
- Down payment options: Eligible borrowers with a qualifying credit score may put down as little as 3.5%.
- Gift funds and assistance opportunities: FHA guidelines may allow permitted gift funds and eligible assistance programs to help with the down payment or closing costs.
- Interest rates: Government insurance reduces some of the lender’s risk, which may result in competitive interest rates for eligible borrowers. Rates still depend on the lender, market conditions and borrower profile.
- Eligible property types: FHA financing may be available for various types of homes, provided they’re a primary residence—multi-unit homes (1-4), single-family homes, townhomes and condos.
Cons of an FHA loan
- FHA loan limits: FHA mortgages are subject to county-level loan limits. Buyers seeking a larger mortgage may need to increase their down payment or consider another loan type.
- Mortgage insurance: Most FHA borrowers pay both upfront and annual MIP, increasing the upfront or ongoing cost of the mortgage. Borrowers who begin with an LTV above 90% may have to pay an annual MIP for as long as they keep the FHA loan.
- Primary residence requirement: While FHA mortgages can be used for single-family and multi-family homes, they can only be used for your primary residence. This means if you're looking to buy a vacation home, investment property or second home, FHA loans won't work for you.
- Property standards: FHA appraisals require the home to meet minimum property standards for safety, security and soundness. Homes needing major repairs may not qualify, which could limit your options in some markets.
- Condo approval requirements: If you’re buying a condo, the project generally must be on FHA’s approved list. This can narrow choices in certain cases.
How to make your FHA loan more affordable
If you’re considering an FHA loan, use an FHA loan calculator to estimate how the down payment and mortgage insurance may affect your costs. You can also use a mortgage calculator to explore how different home prices, loan terms and interest rates could change your estimated monthly payment.
If you already have an FHA loan, an FHA streamline refinance may help lower your interest rate or monthly payment with less documentation than a traditional refinance. Eligibility requirements and closing costs may apply, so compare the potential savings and expenses before refinancing.
In summary
FHA loans may offer a path to homeownership for borrowers seeking a low down payment or potentially flexible credit guidelines. However, mortgage insurance, property standards, occupancy rules and FHA loan limits may affect whether this option fits your plans. Before deciding, compare FHA and conventional financing, estimate the full monthly payment and review your qualifications with a Loan Officer or Home Lending Advisor.
FHA loan FAQs
1. How many FHA loans can you have?
Depending on the lender, you can take out more than one FHA loan during your lifetime. However, you can typically only have one FHA loan at a time because you can only have one primary residence.
2. How to apply for an FHA loan?
You can apply with an FHA-approved mortgage lender. The lender will review your application and information, such as credit score, income, employment, assets, liabilities and proposed down payment. After you select a home, the property must also complete an FHA appraisal and meet minimum property standards. Consider seeking mortgage preapproval before shopping for a home, so you have an initial estimate of how much you could borrow.
3. Can you buy land with an FHA loan?
The FHA has loan programs to help finance the purchase of land. However, you can’t purchase land you intend to leave vacant. You will have to commit to building a home on the property or find land with a house already on it. As with most FHA loans, the property will likely need to be your primary residence.
4. Can you build a house with an FHA loan?
Yes, you may use your FHA loan to build a house on land you own. Options may include FHA construction loans (to finance building your house) or the FHA Mortgage Insurance Disaster Victims Section 203(h).
5. Is an FHA loan only for first-time homebuyers?
No, FHA loans are not only for first-time homebuyers. Anyone who meets a lender’s qualifications for an FHA loan may be approved.
