The short answer
An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA does not lend money — it insures loans made by FHA-approved lenders, which allows more flexible credit and down payment terms in exchange for mandatory mortgage insurance.
To qualify you generally need:
- a credit profile meeting FHA's score bands and your lender's own standards
- a minimum down payment tied to that score band, from an acceptable source
- a debt-to-income ratio within FHA and lender limits
- documented, verifiable income and employment
- a primary residence you will occupy
- a property that passes an FHA appraisal, within the county loan limit
Estimate a payment with the FHA Loan Calculator.
Credit requirements
FHA rules set score bands that determine the minimum down payment, with a higher down payment required in the lower band. Lenders frequently require scores above the program floor — these additional standards are called overlays, and they vary widely between lenders, so a decline from one lender does not mean the program is closed to you.
Beyond the score itself, underwriters look at:
- recent late payments and collections
- open judgments and any delinquent federal debt
- time elapsed since a bankruptcy or foreclosure, subject to FHA's waiting periods and any exceptions
- the overall pattern of the last 12 months
If your credit needs work before you apply, see how to improve your credit score for a mortgage.
Down payment and acceptable funds
The minimum down payment is set by credit score band. Just as important is where the money comes from. Lenders verify the source, and acceptable funds generally include:
- documented savings with a paper trail
- gifts from eligible donors with a signed gift letter
- proceeds from the sale of assets you can document
- approved down payment assistance programs
Large, unexplained deposits are a common cause of delay. Season and document funds well before you apply. The Down Payment Calculator can help you set a savings target.
Mortgage insurance premium (MIP)
Every FHA loan carries mortgage insurance, and it is charged in two parts:
| Component | How it is charged | Notes |
|---|---|---|
| Upfront MIP | A percentage of the base loan amount at closing | Usually financed into the loan balance |
| Annual MIP | Divided into 12 and added to the monthly payment | Rate depends on loan term, loan amount and LTV |
Two points matter for planning. First, financing the upfront premium increases the amount you borrow and therefore your payment. Second, unlike conventional private mortgage insurance, FHA annual MIP does not always fall off once equity builds — its duration depends on the term and the loan-to-value ratio at origination. Some borrowers later refinance into a conventional loan for that reason. Current MIP rates are published by HUD and change from time to time.
Debt-to-income ratio
Underwriters calculate two ratios from gross monthly income:
Front-end ratio = housing payment / gross monthly income
Back-end ratio = (housing payment + other monthly debts) / gross monthly income
The housing payment includes principal, interest, property taxes, homeowners insurance, MIP and any HOA dues. FHA generally permits higher ratios than many conventional standards, and higher ratios may be approved with compensating factors, but limits still apply and lenders set their own. Run your numbers in the DTI Calculator.
Income, employment and occupancy
- Income must be documented and reasonably expected to continue. Expect pay stubs, W-2s, and tax returns for self-employment or commission income.
- Employment history is reviewed for stability; gaps and job changes need explanation.
- Occupancy is required. FHA financing is for a primary residence you occupy within the required period after closing. It cannot be used for a pure investment purchase, though certain multi-unit properties are eligible if you live in one unit.
Property requirements and loan limits
The FHA appraisal serves two purposes: establishing value and confirming the home meets minimum property requirements for safety, security and soundness. Common issues include exposed wiring, missing handrails, roof condition, peeling paint in older homes and non-functioning systems. The seller or buyer may need to resolve these before closing.
FHA also sets county loan limits that cap the amount you can borrow, and those limits vary by area and property size and are updated periodically. Check HUD's published limit for your county before house hunting.
An FHA appraisal is not a home inspection. A separate inspection protects you, not the lender.
A worked payment example
A buyer purchases a $300,000 home with a 3.5% down payment of $10,500, leaving a base loan of $289,500. Assume an upfront MIP of 1.75% financed into the loan and a 30-year fixed rate of 6.75% for illustration.
| Item | Amount |
|---|---|
| Base loan amount | $289,500 |
| Upfront MIP financed (1.75%) | $5,066 |
| Total financed | $294,566 |
| Principal and interest, 30 years at 6.75% | about $1,911 |
| Annual MIP at 0.55%, monthly | about $135 |
| Property taxes and insurance (estimate) | about $450 |
| Estimated total monthly payment | about $2,496 |
Rates, MIP rates, taxes and insurance are illustrative, not quotes. Your actual figures depend on current HUD premium schedules, your county, your lender and your credit profile.
FHA compared with conventional
| Factor | FHA | Conventional |
|---|---|---|
| Insurer | Federal Housing Administration | Private mortgage insurance, when required |
| Credit flexibility | Generally more flexible | Generally stricter, priced by score |
| Mortgage insurance duration | Depends on term and original LTV | PMI can typically be removed at set equity thresholds |
| Upfront insurance premium | Yes, usually financed | Not typical |
| Property standards | FHA minimum property requirements | Standard appraisal |
| Occupancy | Primary residence only | Primary, second home or investment |
A deeper comparison is in FHA vs. conventional loans.
Common mistakes
- Assuming a single national credit minimum applies at every lender.
- Overlooking that upfront MIP, once financed, raises the payment.
- Budgeting only principal and interest and forgetting taxes, insurance and MIP.
- Shopping above the county loan limit.
- Skipping a private home inspection because the appraisal passed.
- Opening new credit between preapproval and closing.
- Treating an FHA loan as available for a rental purchase.
Related calculators
- FHA Loan Calculator — payment with upfront and annual MIP
- Mortgage Calculator — principal and interest at any rate
- DTI Calculator — front-end and back-end ratios
- Down Payment Calculator — savings target and timeline
- Home Affordability Calculator — price range by income
Related reading
- FHA vs. conventional loans
- Mortgage pre-approval process
- Closing costs explained
- What is PMI and how to remove it
Sources and references
- U.S. Department of Housing and Urban Development, FHA single family housing policy handbook 4000.1
- HUD, FHA mortgage limits
- HUD, FHA mortgage insurance premium information
- Consumer Financial Protection Bureau, Loan options and mortgage basics
This article is general education for U.S. home buyers, not personalized lending advice. FHA rules, premium rates and loan limits change; verify current figures with HUD and your lender.