If you don’t have a high credit score, or don’t have enough money saved for a 20% down payment, an FHA loan could put homeownership within reach. There are some pros and cons of FHA loans to consider. You’ll find more details in this article, but at glance, an FHA loan offers:
On the flip side, FHA loans require you to pay mortgage insurance and an annual mortgage insurance premium.
So, just what is an FHA loan? It’s a mortgage insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). FHA loans are issued by an approved mortgage lender – like Union Home Mortgage – who are protected against loss if the borrower happens to default on their loan. FHA loans were created to help more Americans with low to moderate incomes realize the dream of homeownership, making them popular with first-time homebuyers.
Qualifying for an FHA Loan
Being eligible for an FHA loan is not dependent on specific income amounts, but you have to show a steady employment history. Typically, it’s easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that is not insured or guaranteed by the FHA. With an FHA loan, homebuyers can borrow up to a certain percentage of a home’s value, which is dependent on their credit score:
- 580+ credit score – can borrow up to 96.5% of a home’s value (which means the down payment is only 3.5%).
- 500 – 579 credit score – may still qualify for an FHA loan with credit scores as low as 500 with a down payment of at least 10%.
With as little as 3.5% required for a down payment, an FHA loan could be the right choice for first-time homebuyers, students, recent graduates, newlyweds, or those with credit scores impacted by bankruptcy, foreclosure, or the impact of a divorce. The down payment can come from savings, a financial gift from a family member, or a grant for down payment assistance.
FHA Loan Requirements
The FHA has established minimum requirements to qualify for an FHA loan. However, each FHA-approved lender can set its own underwriting requirements, as long they are in line with the minimums set by the FHA. Overall, the following are typical standards an FHA loan requires:
- Credit History – as outlined above, credit history and credit score are major factors. An FHA loan requires a credit score of 580 or higher for a down payment as low as 3.5%. Your credit score can be in the 500 to 579 range with a 10% down payment. Unfortunately, borrowers with credit scores below 500 will not meet minimum requirements.
- Debt-To-Income Ratio (DTI) – is used to evaluate creditworthiness and might impact the down payment amount and the overall odds of approval. Your DTI compares how much you owe each month to how much you earn. Specifically, it’s the percentage of your gross monthly income (before taxes) that goes toward payments for rent, mortgage, credit cards, student loans, or other debt.
- FHA Appraisal – the property must undergo an appraisal to make sure it meets government standards for health and safety. An FHA appraisal is separate from a home inspection.
There are a few more requirements to keep in mind, like the home has to be a primary residence and you must occupy the property within 60 days of closing. An FHA loan can be used to buy or refinance several types of homes, including
- Single-family houses,
- Condominium units,
- Certain manufactured homes
- Mixed-use properties (provided at least 51% of the space is dedicated to the residence).
Some types of FHA loans can also be used to finance new construction or renovate an existing home.
FHA Mortgage Insurance Premiums
All FHA loans also require you to pay mortgage insurance in the form of a mortgage insurance premium (MIP), regardless of the amount of the down payment. MIP is split into two components: an upfront premium and annual premiums. MIP is similar to private mortgage insurance (PMI) on a conventional mortgage. Both PMI and MIPs are a form of mortgage insurance that protects lenders in case the borrower defaults on the loan.
- Upfront premium – currently 1.75% of the loan amount, which is paid either at closing or incorporated into the final loan amount. As an example, if you borrow $200,000 your upfront MIP will be $3,500.
- Annual premiums – the amount varies based on down payment, loan amount, and loan term, but a 0.55% annual MIP is the current standard pricing for most FHA-insured mortgages. The amount is divided by 12 and spread across your monthly payment.
Typically, you pay the MIP for the life of the loan, even once you reach 20% equity in your home. If you make a down payment of more than 10% on an FHA mortgage, MIP is paid for 11 years. It is possible to refinance an FHA mortgage to avoid paying a MIP, but this comes with its own set of financial considerations.
FHA Loan Limits
Regardless of the type of FHA loan, there will be limits on the mortgage amount. These limits vary by county, ranging from $524,225 up to $1,209,750 in 2025.
- Low-Cost County Limit – the upper limit for FHA loans on single-family homes in low-cost counties is $524,225.
- High-Cost County Limit – the upper limit for FHA loans in the highest-cost counties is $1,209,750.
There are counties with housing prices that fall between low-cost and high-cost counties, with FHA loan limits also falling somewhere in the middle. To find out the FHA loan limit in any county in the United States, visit the .
Is An FHA Loan Right For You?
FHA loans can be extremely valuable to borrowers who may otherwise not qualify for conventional mortgage financing because of limited savings for a down payment or lower credit scores. The higher costs associated with buying a home with an FHA loan can be a welcome trade off if you’re interested in going from renting to beginning to build equity in a home.
Contact us today to find out more about how homeownership could be within reach and to apply for an FHA loan.
The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.
