FHA loans: a plain-English guide
FHA loans are insured by the Federal Housing Administration. That insurance lets approved lenders offer a lower down payment and more flexible credit guidelines than many other loans.
Who an FHA loan fits
- Buyers with a smaller down payment saved
- Buyers whose credit is still being rebuilt
- First-time buyers, though you do not have to be one
- Buyers who will live in the home as their main residence
Down payment and credit
| Credit score | Minimum down payment (FHA guideline) |
|---|---|
| 580 or higher | 3.5% of the purchase price |
| 500 to 579 | 10% of the purchase price |
These are the FHA minimums. Each lender can set stricter requirements of its own, called overlays, so two lenders may give different answers for the same file. That is one reason comparing lenders matters.
Mortgage insurance (MIP)
FHA loans carry two kinds of mortgage insurance premium: an upfront premium, usually rolled into the loan, and an annual premium paid monthly. How long the annual premium lasts depends on your down payment and loan term. Ask each lender to show MIP on the Loan Estimate so you can compare the full monthly cost.
Loan limits
FHA sets a maximum loan amount by county, and it is updated every year. Higher-cost areas have higher limits. A lender can confirm the current limit for the county you are buying in.
Other rules to know
- The home must be your primary residence.
- The property must meet FHA minimum property standards, checked through an FHA appraisal.
- Gift funds from family can often be used toward the down payment, with documentation.
- Sellers can contribute toward some closing costs, within FHA limits.
Common questions
Do I have to be a first-time buyer to get an FHA loan?
No. FHA loans are open to repeat buyers too, as long as the home will be your primary residence.
Can I remove FHA mortgage insurance?
It depends on your down payment and when the loan started. Many borrowers remove it later by refinancing into a conventional loan once they have enough equity.
Is an FHA loan cheaper than a conventional loan?
Not always. With strong credit and a larger down payment, a conventional loan can cost less over time. Compare both on a Loan Estimate.
Ready to compare options?
It takes about 2 minutes and does not affect your credit.