FHA loans are government-backed mortgage loans with requirements that are easier to qualify for than conventional loans. An FHA loan gives people with imperfect credit or limited cash for a down payment a more accessible way to buy a home and are very popular with first-time homebuyers.
But FHA loans also come with some extra costs that can add up over the life of a 30-year mortgage. Understanding the full picture of FHA loan requirements, fees and limits can help you decide whether it’s the best choice for you.
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA) that’s required to follow underwriting guidelines set by the U.S. Department of Housing and Urban Development (HUD). Having the backing of a government agency reduces the risk for lenders, which is why FHA-approved lenders can provide home loans to borrowers with low credit scores and small down payments — many of whom can’t qualify for a conventional loan.
However, these loans can get pricey — you’ll have to pay two types of FHA mortgage insurance to protect your lender against losses if you can’t make your mortgage payments.
What is the FHA?
The Federal Housing Administration is a government agency that was created to make it easier for Americans to become homeowners. It provides mortgage insurance to cover lender losses on FHA loans. If a homeowner defaults and the lender has to foreclose on the home, the FHA pays off the loan balance.
FHA loan requirements and loan limits: Who qualifies?
FHA loan requirements are generally easier to meet than other loan programs, which is why FHA loans are popular among first-time homebuyers.
Each requirement is explained in more detail below, but here is an overview of the FHA’s minimum mortgage requirements:
- Credit score: 500 (10% down payment), 580 (3.5% down payment)
- Down payment: 3.5% (score 580 or higher), 10% (score of 500 to 579)
- Debt-to-income ratio: 43%
- Mortgage insurance: Yes
- Income limits: No
- Occupancy: Primary residence only
- Loan limits: Yes
Minimum credit score: 500
You may qualify for an FHA loan with a score as low as 580 if you’re making the minimum 3.5% down payment, or 500 if you’re putting down 10% or more.
FHA loans work for people with imperfect credit
FHA loans may be the only choice for some borrowers who are repairing their credit or may have derogatory or delinquent accounts in their credit history.Major credit events like bankruptcies and foreclosures require a four- to seven-year wait time for conventional financing. However, you’re eligible for an FHA loan:
- Two years after a Chapter 7 bankruptcy
- Three years after a foreclosure
Minimum down payment: 3.5%
Along with the 3.5% down payment requirement, FHA loan guidelines don’t require you to come up with your own money to buy a home. Your down payment funds can be gifted from a relative, employer, nonprofit or labor union.You can even sell an asset like a car to come up with the money. However, be sure to document the sale with details of the ownership transfer as well as the transfer of funds.
Maximum DTI ratio: 43%
Lenders divide your total debt by your pretax income to determine your debt-to-income (DTI) ratio. Historical data shows that the higher your ratio, the harder it is to make your monthly mortgage payment, which is why lenders prefer this ratio to be lower.
Even though FHA guidelines set the maximum at 43%, you could qualify with a DTI ratio above 50% if you have a strong credit score and extra cash reserves.
FHA mortgage insurance is required
The FHA requires two types of FHA mortgage insurance on every FHA loan:
- Upfront mortgage insurance premium (UFMIP) that costs 1.75% of the loan amount and is typically added to your mortgage balance.
- Annual mortgage insurance premium (MIP) that costs between 0.15% and 0.75% of the loan amount. The annual cost is divided by 12 and added to your monthly mortgage payment.
How to reduce your monthly FHA insurance costs
The best ways to minimize your FHA insurance premiums are to make a higher down payment, choose a 15-year loan term or borrow less money. Use an FHA loan calculator to try out different scenarios and see how they affect your monthly payment. Or, better yet, ask your loan officer to provide you with loan estimates featuring different variations.
FHA loan income requirements: 2-year job history
Another perk of FHA loans is that there are no income limits. That’s good news if you’re low on down payment funds but earn more than the median income for your location, because many down payment assistance (DPA) programs are only open to people making less than the area median income (AMI).
To qualify for an FHA loan, you’re not required to have been employed for a specific amount of time — but you will need to show pay stubs covering the last 30 days. You’ll also need documentation, like W-2s, for any jobs held in the last two years. Be prepared to provide explanations for any large gaps in your employment.
Primary residence requirement
You’ll need to live in a home purchased with an FHA loan as your primary residence for at least one year. Conventional loans, on the other hand, allow you to finance a vacation home or rental property.
Cash reserves (for high-DTI or low-credit-score applicants)
A high DTI ratio or low credit score may trigger a requirement for mortgage reserves, which is rainy-day money you have on hand to cover a set number of monthly mortgage payments. You’ll also need cash reserves if you’re buying a multifamily home and plan to rent out the extra units.
FHA loan limits
HUD caps how much you can borrow when it sets FHA loan limits each year. The limits are a percent of the conforming loan limits set annually by the Federal Housing Finance Agency. The bottom line: You can’t borrow as much money with an FHA loan as you can with a conventional loan.
You can find your local loan limits on the FHA mortgage limits website. Our table below breaks down the 2024 national limits for low- and high-cost areas.
| Number of units | Low-cost area limits | High-cost area limits |
|---|---|---|
| One unit | $498,257 | $1,149,825 |
| Two units | $637,950 | $1,472,250 |
| Three units | $771,125 | $1,779,525 |
| Four units | $958,350 | $2,211,600 |
If FHA loan limits don’t give you enough money for your home purchase, check the conforming loan limits in your area. In most parts of the country, the one-unit conforming conventional loan limit is $766,550, giving you $268,293 more than FHA loan limits allow to put toward a home purchase.
FHA mortgage rates are typically lower than conventional loan rates. However, only FHA-approved lenders can offer FHA loan rates, which means you may have fewer options to compare when shopping for the best rate.
Current average FHA mortgage and refinance rates
Loan Product | Interest Rate | APR |
|---|---|---|
| 30-year fixed rate FHA mortgage | 6.46% | 7.16% |
| 30-year fixed rate FHA refinance | 6.35% | 7.19% |
Current average rates are calculated using all conditional loan offers presented to consumers nationwide by LendingTree’s network partners on the previous day for each combination of loan type, loan program, and loan term. Rates and other loan terms are subject to lender approval and not guaranteed. Not all consumers may qualify. See LendingTree’s Terms of Use for more details.
Types of FHA loans
FHA purchase loan
Most homebuyers choose a “standard” FHA loan to buy or refinance their home. Also called the 203(b) loan program, this type of FHA loan features the down payment and credit score requirements discussed above.
Who it’s good for: Low-credit-score borrowers who don’t have a lot saved for a down payment.
FHA refinance loan
If you have at least a 580 credit score, you can replace your current FHA loan with a new one and borrow up to 97.75% of your home’s value. You can also roll your FHA closing costs into the total loan amount. This is commonly known as a “rate-and-term” refinance.
Who it’s good for: Homeowners who don’t have enough equity or a high-enough credit score to qualify for a conventional refinance.
FHA streamline refinance
If you have an existing FHA loan, an FHA streamline refinance can help you lower your monthly payments or change your term. An added bonus: You can skip providing income documents and paying for a home appraisal, which makes the process easier than a regular FHA refinance.
Who it’s good for: Homeowners who have a current FHA loan and want to save money with a new FHA loan.
FHA cash-out refinance
You may qualify to borrow more than you currently owe and pocket the difference in cash with an FHA cash-out refinance — even with a credit score as low as 500. But you can’t borrow more than 80% of your home’s value, and the cash-out option only applies if the home is your primary living place.
Who it’s good for: Homeowners who want to tap their home’s equity to pay off debt or meet other financial goals.
See current mortgage refinance rates today.
FHA 203(k) renovation loan
Buy or refinance a home and roll the renovation costs into the same mortgage with the 203(k) loan program. You can choose the limited program for smaller projects (under $35,000), while the standard program gives you more cash for larger ones.
Who it’s good for: Borrowers who want to buy or refinance and roll the cost of home repairs into one loan.
Home equity conversion mortgage (HECM)
The HECM loan, more commonly known as a “reverse mortgage,” gives borrowers ages 62 or older multiple ways to convert their home equity to cash or income. The big selling point is that, unlike a regular mortgage, there is no monthly payment. The amount you can qualify to borrow is based on the youngest homeowner’s age.
Who it’s good for: Seniors who want to convert their equity to income, a credit line, a lump-sum payout or a combination of all three.
FHA energy-efficient mortgage
Called an EEM for short, an energy-efficient mortgage program lets you add the cost of energy-saving upgrades — usually between $1,500 and $25,000 — to the balance of a purchase or refinance loan.
Who it’s good for: Homebuyers or homeowners who want to add the cost of green upgrades to their home loan.
FHA GPM and GEM loans
Two lesser-used loan programs are the graduated payment mortgage (GPM) and growing equity mortgage (GEM). The GPM loan starts off with negative amortization (meaning your balance will actually grow during the first few years) and has monthly payments that increase each year. If you’d like to pay off your mortgage earlier, the GEM loan has monthly payments that increase on a set schedule to shrink your principal balance at a quicker pace.
Who it’s good for: Homebuyers who want the lowest payment early in their career or plan to pay off their loan faster as their income grows.
How the FHA helps if you can’t make your mortgage payments
No matter the specific type of FHA loan you choose, you’ll have access to relief if your loan becomes hard to afford. Those facing mortgage default can qualify for a variety of loss mitigation options. Many of the measures put in place to help FHA borrowers during the COVID-19 pandemic are now available to all FHA borrowers moving forward.
Since FHA loans are supported by the FHA, you have to go through an FHA-approved lender to get one — typically a bank or credit union. The basic process for getting an FHA loan is the same as any other mortgage loan:
- You document your income and assets to qualify
- Your credit report is pulled
- You provide your employment and address history
Ready to compare FHA lenders and rates? Get Personalized FHA Loan Offers
How FHA loans are different than other loans
- You won’t get approved if you haven’t repaid other government-backed loans. FHA-approved lenders must check the Credit Alert Interactive Verification Reporting System (CAIVRS) to determine whether you’ve defaulted on another government-backed loan. If you’re delinquent on student loans, Small Business Administration (SBA) loans or other government debt, your application may be denied.
- You could get a refund on FHA mortgage insurance if you refinance. When you apply for an FHA loan, your new address is tied to an FHA case number. If you decide to take steps to refinance your mortgage later, a lender will use the number to determine if you’re owed a refund for FHA mortgage insurance you’ve already paid.
- You must buy an FHA appraisal. You need to get an FHA appraisal, no matter your down payment percent or credit score. This includes a detailed analysis of the safety and livability of your home. The FHA doesn’t offer the appraisal waiver that’s available for conventional loans.
- You can cancel your sales contract after a low appraisal. An “amendatory clause” is included in your FHA mortgage paperwork. It gives you the right to cancel your contract if the appraised value is lower than the sales price.
Learn more about what to do if your mortgage loan was denied.
Pros and cons of FHA loans
| Lower credit score minimums. You may qualify with scores 40 to 120 points lower than conventional loans. | Higher mortgage insurance costs. You’re stuck with the bill for two types of mortgage insurance, compared to one for conventional loans. |
| Higher DTI ratio limits. A heavy debt load is less of an obstacle than it is for conventional loans. | Life-of-loan mortgage insurance is required with a minimum down payment. In this scenario, the only way to remove it is to refinance to a different loan type. |
| Credit scores don’t impact mortgage insurance premiums. Conventional PMI, on the other hand, may be unaffordable with a lower credit score. | Mortgage insurance is required regardless of the down payment amount. A 20% down payment on an FHA loan still requires mortgage insurance. |
| Variety of programs. Choose from renovation, reverse and energy-efficient loan options. | Limited to primary residences. You’ll need a conventional loan to buy a second home or investment property. |
| No maximum income limits. This is good news if you make too much for a conventional first-time homebuyer loan program or down payment assistance program. | Lower maximum loan limits. You give up more than $268,000 of borrowing power by choosing an FHA loan over a conventional loan. |
| Refinance programs available without income verification or an appraisal. Conventional loan requirements don’t offer this flexibility. | Closing costs can’t be rolled into an FHA streamline refinance loan. You can only finance interest and FHA mortgage insurance. |
Should I get an FHA loan?
FHA loans could be a good idea for you if:
You’re looking to get a home without making a large down payment — especially if you don’t qualify for conventional low-down-payment loan programs.
You’re struggling to meet the credit requirements for a conventional loan and want to ease the strain with an option for borrowers with credit scores as low as 500.
Just be sure that you compare the full costs associated with any loans you’re considering. FHA loans may come with lower interest rates and more flexible requirements, but their mortgage insurance costs can bump up their APRs.
Use our FHA loan calculator to estimate costs and your monthly mortgage payment.
Key takeaways help decide if an FHA loan is right for you
→ An option for homebuyers with low credit scores and small down payments who can’t qualify for a conventional loan.
→ A good alternative for those with smaller down payments but who earn a higher income than most conventional, low-down-payment programs allow.
→ Mortgage insurance is required no matter how large your down payment, which can make the loan more expensive over 30 years than a conventional loan.
Here are seven basic steps to follow when finding and applying for an FHA loan:
1. Shop with several FHA-approved lenders.
Compare the rates and costs of at least three to five lenders, including mortgage brokers, mortgage lenders and local banks or credit unions. If you don’t know where to start, check out our list of the best FHA lenders below. You can also put your basic financial information into an online rate comparison site like LendingTree and to have lenders call you with their best offers.
2. Ask the right questions.
Asking the following questions may help you narrow down your lender choices:
- What is your lender’s minimum FHA score requirement? Lenders may set higher credit score standards than the FHA actually requires.
- Are you approved to offer down payment assistance (DPA) with your FHA loans? Check out down payment assistance programs in your area. They might cover both your down payment and some closing costs. Some DPA programs require approval from your bank or lender. Check if you’re working with a lender that allows the DPA program you’re interested in.
3. Complete a loan application.
Have basic information handy about your income, monthly debts and down payment funds as you fill out the application.
4. Give the lender permission to verify your credit scores.
The lender will pull a credit report to verify that you meet the minimum FHA credit score requirement.
5. Provide two years of employment and income history.
Collect pay stubs for the last 30 days, the last two years of W-2s or federal tax returns and employer contact information. You won’t need as much paperwork if you’re applying for a special FHA program, like a reverse mortgage or streamline refinance.
6. Document your down payment source.
Lenders typically review two months’ worth of bank statements, or need a letter explaining where the down payment and closing cost funds are coming from.
7. Explain and document any defaulted federal debt.
If you’ve recently paid off defaulted student loans or other government debt, give your lender a letter of explanation and supporting documents.
How much are FHA loan closing costs?
You’ll pay between 2% and 6% of your loan amount toward FHA closing costs. Besides mortgage insurance, there are some closing cost features unique to FHA loans.
- You’ll need an FHA appraisal for a purchase. A typical FHA appraisal will cost you between $400 and $700, compared to $300 to $500 for a conventional loan appraisal.
- More closing costs can be paid by the seller. FHA rules allow the seller to contribute up to 6% of the home’s purchase price toward your closing costs, which is more than the 3% maximum conventional guidelines allow with a minimum down payment.
The best FHA lenders of 2024
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How Does LendingTree Get Paid?
LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.
| Lender | User ratings | LendingTree rating | Min. credit score (FHA loans) | Min. down payment (FHA loans) | |
|---|---|---|---|---|---|
(624) User Ratings & Reviews Ratings and reviews are from real consumers who have used the lending partner’s services. | Read review Best FHA lender for online mortgage rates | 580 | 3.5% | Get Offers | |
User reviews coming soon | Read review Best FHA lender for online experience | 580 | 3.5% | Get Offers | |
(14,330) User Ratings & Reviews Ratings and reviews are from real consumers who have used the lending partner’s services. | Read review Best FHA loan lender overall | 600 | 3.5% | Get Offers | |
(89) User Ratings & Reviews Ratings and reviews are from real consumers who have used the lending partner’s services. | Read review Best FHA lender for bad credit | 500 | 3.5% | Get Offers |
Read more about how we chose our list of the best FHA mortgage lenders below.
Best FHA loan lender for access to mortgage rates online: PennyMac
PennyMac at a glance
- Minimum credit score (FHA loans): 580
- Minimum down payment (FHA loans): 3.5%
- Available FHA loan programs: Purchase, streamline refinance, cash-out refinance
- Additional loan products: Conventional, VA, home equity, jumbo
- LendingTree rating: Read review
PennyMac is a large mortgage lender based in California, offering home loans in all 50 states and some U.S. territories. The rate-shopping experience you’ll find on PennyMac’s website is a relief — especially when compared to lenders that either don’t publish rates at all or force you to fill out a form before you can see them. PennyMac is also one of the few lenders we came across that place FHA loan rates front and center in their general rate information, right next to conventional and other loan types. The only limitation is that the rates interface doesn’t allow you to filter by credit score, location, home price or any other factor. For customized rates, you’ll have to bite the bullet and complete the form.
Best FHA loan lender for online experience: Flagstar Bank
Flagstar Bank at a glance
- Minimum credit score (FHA loans): 580
- Minimum down payment (FHA loans): 3.5%
- Available FHA loan programs: Purchase
- Additional loan products: Conventional, VA, USDA, jumbo, HELOCs
- LendingTree rating: Read review
Flagstar, established in 1987, is the third-largest savings bank in the U.S. and issues home loans in all 50 states. It doesn’t offer a huge variety of FHA loan products, but it does provide a stellar online experience. Flagstar publishes rates online, offers helpful product information and resources about mortgage lending on its website and has a convenient online application. And if you’re hoping for the option to visit a brick-and-mortar location, you may be in luck: Flagstar operates branches in a handful of states across the country.
Best FHA loan lender overall: AmeriSave Mortgage
AmeriSave Mortgage at a glance
- Minimum credit score (FHA loans): 600
- Minimum down payment (FHA loans): 3.5%
- Available FHA loan programs: Purchase, streamline refinance, cash-out refinance
- Additional loan products: Conventional, VA, USDA, jumbo
- LendingTree rating: Read review
AmeriSave Mortgage, based in Atlanta, lends to borrowers in 49 states (New York excluded) and the District of Columbia. With more than 20 years of issuing mortgages, the company offers three of the four popular FHA loan programs we look for: purchase, streamline refinance and cash-out refinance. (None of the lenders in our roundup offer FHA 203(k) loans, a type of FHA loan used for construction, so AmeriSave is still top of the class for loan variety.) Its robust suite of FHA programs, paired with a strong online experience that includes an online application and rate information, pushed AmeriSave to the top of our list. AmeriSave’s rates are updated regularly and can be customized to your situation.
Best FHA loan lender for bad credit: Carrington Mortgage Services
Carrington Mortgage at a glance
- Minimum credit score (FHA loans): 500
- Minimum down payment (FHA loans): 3.5%
- Available FHA loan programs: Purchase, refinance, streamline refinance
- Additional loan products: Conventional, VA, jumbo, USDA
- LendingTree rating: Read review
If you’re looking for a lender that’s willing to take a chance on borrowers with low credit scores, Carrington could be a great choice for you. The company not only offers a variety of FHA loans, but it’s also willing to accept borrowers with a minimum 500 credit score. That’s about 150 points below the average required score for the other lenders we reviewed.
Ready to compare customized loan offers on LendingTree?
Compare FHA Rates and Offers
Many times the choice between an FHA and conventional loan comes down to credit scores and total debt. Conventional loans are the most popular type of mortgage, but borrowers have to meet higher qualifying standards to get approved for one.
The table below highlights the major differences between FHA and conventional loans.
| Minimum down payment | 3.5% with a 580 credit score | 3% |
| Minimum credit score | 500 to 579 with a 10% down payment | 620 |
| Maximum DTI ratio | 43% with exceptions up to 50% or higher | 45% with exceptions up to 50% |
| Maximum loan limits | Lower than conventional loan limits | Higher than FHA loan limits |
| Appraisal requirements | Required on all purchase loans | May be waived on some purchase and refinance loans |
| Mortgage insurance |
|
|
| Occupancy | Primary residence only | Primary, second or investment home |
| Streamline refinance available? | Yes | No |
It makes sense to choose an FHA loan if:
Your credit score is below 620 You can’t afford a large down payment You have bankruptcy or foreclosure in your credit history You earn too much income to qualify for conventional low-down-payment programs like Fannie Mae HomeReady or Freddie Mac Home Possible.
It makes sense to choose a conventional loan if:
You need to borrow more than FHA loan limits allowYou can afford to make a 20% down paymentYou want to buy a vacation home or investment property
