FHA loans explained: A guide for homebuyers

Key takeaways

• FHA buyers with a credit score of 580 or higher need just 3.5% down, but they pay a 1.75% upfront mortgage insurance premium, or MIP, plus an annual 0.55% MIP that lasts the full 30-year loan term unless they put down at least 10%. 
• FHA allows sellers to contribute up to 6% of the sale price toward the buyer's closing costs, giving agents a concrete lever when structuring offers for cash-constrained buyers. 
• Every FHA-financed property must pass an FHA appraisal that checks for safety and habitability standards, including roof condition, lead paint and handrails, which can delay closing if repairs are required. 

An FHA loan is one of the most common mortgage types in the U.S., and FHA loan requirements affect nearly every step of the homebuying process, from preapproval to closing.

If you're considering FHA financing to buy a home, understanding these requirements early helps you set a realistic budget, avoid surprises during underwriting and put together a stronger offer.

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An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. The FHA does not lend money directly. It insures loans issued by FHA-approved lenders, which reduces the lender's risk and allows them to offer financing to buyers who may not qualify for conventional mortgages.

FHA loans can be used to purchase single-family homes and two- to four-unit properties, as long as you occupy one unit as your primary residence. They cannot be used for investment properties, vacation homes or commercial real estate.

The FHA offers several loan programs beyond the standard 203(b) purchase mortgage. These include the 203(k) rehabilitation loan for properties that need repairs, the streamline refinance for existing FHA borrowers, the energy-efficient mortgage for funding green upgrades and the Home Equity Conversion Mortgage (HECM) for borrowers 62 and older. If you're buying a home, the 203(b) is most likely the program that applies to you.

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• How to get a VA loan
• How to get a zero-down home loan from USDA

If your FICO score is 580 or higher, you can make a down payment as low as 3.5%. For scores between 500 and 579, the minimum down payment required is 10%. These are FHA's published minimums, but individual lenders often set their own overlays and may require higher scores.

A buyer with a 580 might be turned down by one lender and approved by another. For that reason, it's worth getting preapproved by at least two FHA-approved lenders to compare terms and rates.

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There is no minimum or maximum income requirement for an FHA loan. Instead, qualification depends on debt-to-income, or DTI, ratios. The front-end ratio measures your projected monthly housing costs against your gross income and should typically be 31% or lower. The back-end ratio measures your total monthly debts against your gross income and should be 43% or lower.

Some lenders approve ratios up to 50% with compensating factors. These include cash reserves or a consistent history of on-time housing payments. When you receive your preapproval letter, check whether the lender used standard or expanded DTI thresholds, because that affects how much purchasing power you actually have.

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You'll need to show at least two years of employment history and provide pay stubs, W-2s, tax returns and bank statements. Your credit profile will also factor into the lender's review.

Gaps in employment don't automatically disqualify you, but lenders will require written explanations. Gather these documents before you apply, not after, so the process moves faster.

The minimum FHA down payment is 3.5% of the purchase price for buyers with a credit score of 580 or higher. On a $350,000 home, that comes to $12,250.

You can use gift funds from family members, employers, charitable organizations or government agencies for part or all of the down payment. Your lender will require a signed gift letter confirming the money is not a loan that must be repaid.

FHA allows sellers to contribute up to 6% of the lesser of the sale price or appraised value toward your closing costs. That is more generous than the 3% cap on conventional purchase loans for buyers putting less than 10% down. (Conventional limits rise to 6% at 10-25% down and 9% at 25%+ down.)

You cannot apply seller concessions to the minimum down payment, but they can cover closing costs, prepaid taxes, insurance and discount points. When writing your offer, you or your agent can request seller concessions up to the 6% cap to reduce the cash you need at closing.

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Every FHA loan requires two types of mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) equal to 1.75% of the loan amount, paid at closing. The second is an annual mortgage insurance premium (MIP) of approximately 0.55% (0.50% for borrowers putting 5 to 10% down), divided into 12 monthly payments.

Consider a hypothetical buyer with a $350,000 loan amount. The UFMIP would be $6,125, which most borrowers roll into the loan balance rather than paying out of pocket. The annual MIP would add roughly $160 per month on top of principal, interest, taxes and homeowners insurance.

Factor this cost into your budget when deciding how much home you can afford, because MIP directly increases your total monthly payment.

If you put down less than 10%, MIP remains for the life of the 30-year loan. The only way to remove it at that point is to refinance into a conventional mortgage once you reach 20% equity. If you put down 10% or more, MIP drops off after 11 years.

Understanding this timeline matters before you commit to a loan amount, because it affects your long-term housing costs.

The property must be your primary residence and pass an FHA appraisal conducted by an FHA-approved appraiser. This appraisal serves double duty: determining market value and verifying the property meets safety, security and soundness standards.

The appraiser checks for structural defects, adequate heating and roofing, safe electrical and plumbing systems, proper water and sewage connections and lead paint hazards in homes built before 1978. The roof must have at least two years of remaining useful life, and any staircase with three or more steps must have handrails. If the appraiser flags issues, the lender may require repairs before closing, which can delay the transaction.

Common appraisal failure points include roofs nearing end of life, chipped lead-based paint in pre-1978 homes, missing stair handrails and foundation cracks or settlement. When touring properties, keep these standards in mind. A home that needs repairs in any of these areas could create complications after you go under contract.

Comparing FHA loan requirements to other programs helps you determine which financing option fits your situation best. FHA loans have lower credit and down payment thresholds than conventional loans, but they carry mortgage insurance for a longer period. If you need flexibility upfront and plan to refinance later, FHA is often a strong entry point. If you have stronger credit or more cash on hand, other programs may cost less over time.

Sources: HUD, Fannie Mae, VA, USDA, Consumer Financial Protection Bureau

If you're a veteran or active-duty service member, ask your lender about VA loan eligibility. If you're buying in a rural area, you may qualify for a USDA loan.

An FHA loan may not be the best option if your credit score is above 700, you've saved 10% or more for a down payment or you're shopping above your county's FHA loan limit. In those cases, a conventional loan typically offers better long-term value because you can avoid or eventually drop mortgage insurance.

As shown in the table, a VA loan requires no down payment, carries no monthly mortgage insurance and has no loan limit for borrowers with full entitlement. If you're eligible, it's worth comparing VA terms against FHA before you commit.

In most cases, no. HUD generally limits borrowers to one FHA-insured mortgage at a time. Exceptions exist for specific situations, such as relocating for work to an area too far to commute from your current home or when you've outgrown your current property due to a growing household. Ask your lender whether you qualify for an exception under HUD's guidelines.

A seller can refuse any offer for any reason, aside from illegal discrimination. Some sellers avoid FHA offers because they expect stricter appraisal requirements and longer closing timelines. You can strengthen your offer by including a strong preapproval letter from your lender and proposing a realistic closing date.

No. HUD sets a floor and a ceiling, and limits vary by county based on local median home prices. In 2026, the floor for a single-family home is $541,287 and the ceiling is $1,249,125. Alaska, Hawaii, Guam and the U.S. Virgin Islands have higher limits due to construction costs. You can check the exact limit for your county using HUD's lookup tool.

Yes. Many state and local housing finance agencies offer grants or forgivable second mortgages that can be layered with an FHA loan to cover part or all of the 3.5% minimum down payment. Ask your lender whether they work with local assistance programs, since availability varies by state and municipality.