FHA Loans
FHA loans are insured by the Federal Housing Administration and let you buy with as little as 3.5% down and a 580 credit score, making them a top choice for first-time buyers and credit rebuilders.
At a glance
| Minimum down payment | 3.5% (with 580+ credit) or 10% (with 500–579 credit) |
|---|---|
| Minimum credit score | 580 (most lenders); 500 with 10% down |
| Maximum loan amount | $524,225 in most counties; up to $1,209,750 in high-cost areas (2025) |
| Mortgage insurance | Upfront MIP of 1.75% rolled into loan + annual MIP of 0.55%; lasts the life of the loan if down payment is under 10% |
Best for
- First-time homebuyers with limited savings
- Buyers with credit scores between 580 and 680
- Borrowers with higher debt-to-income ratios up to 56.9%
- Buyers who have had a past bankruptcy or foreclosure (with seasoning)
Eligibility requirements
- Credit score of at least 580 for 3.5% down (500–579 requires 10% down)
- DTI typically up to 43%, up to 56.9% with compensating factors
- Property must be your primary residence
- Home must pass an FHA appraisal (stricter than conventional)
- Two years post-bankruptcy or three years post-foreclosure
Pros
- Low 3.5% down payment requirement
- Flexible credit score requirements
- Higher DTI tolerance than conventional loans
- Assumable — a future buyer can take over your low rate when you sell
- Down payment can be 100% gift funds from family
Cons
- Mortgage insurance lasts the life of the loan unless you put 10%+ down
- Loan limits are lower than conventional in most counties
- Property must meet FHA's minimum property standards
- Only allowed for primary residences
Documents you'll need
- Two most recent pay stubs
- Two years of W-2s and tax returns
- Two months of bank statements
- Photo ID and Social Security card
- Gift letter if any down payment funds are gifted
- Bankruptcy or foreclosure discharge papers if applicable
When an FHA loan beats conventional
FHA wins for buyers with credit scores under 700 and small down payments. The flexible underwriting, gift-fund rules, and assumability make it especially valuable for first-time buyers and anyone rebuilding after a credit event.
The trade-off is the lifetime mortgage insurance. Plan to refinance into a conventional loan once you’ve built 20% equity — that’s how to capture the early-access benefit of FHA without paying for it forever.
Frequently asked questions
- Is FHA only for first-time buyers?
- No. Anyone who meets the credit and income requirements can use FHA financing, as long as the property is their primary residence. There's no first-time buyer requirement.
- How do I get rid of FHA mortgage insurance?
- If you put 10% or more down, MIP drops off after 11 years. With less than 10% down, MIP lasts the life of the loan — but most borrowers refinance into a conventional loan once they reach 20% equity to eliminate it.
- Can I use an FHA loan to buy a duplex or fourplex?
- Yes, as long as you live in one of the units as your primary residence. FHA allows 1–4 unit properties, which is one of the most powerful ways to start building rental income.
- What's the difference between FHA MIP and PMI?
- MIP is government-backed and required regardless of credit score. PMI on conventional loans is risk-priced — borrowers with strong credit pay much less and can cancel it at 20% equity.
Related loan programs
- Conventional Loans — Conventional loans aren't backed by a government agency, follow Fannie Mae and Freddie Mac guidelines, and reward strong credit with the lowest rates and most flexible terms available.
- VA Loans — VA loans are guaranteed by the Department of Veterans Affairs and let eligible veterans, active-duty service members, and surviving spouses buy with zero down payment and no monthly mortgage insurance.
- USDA Loans — USDA loans are backed by the U.S. Department of Agriculture and offer 100% financing for low- to moderate-income buyers in eligible rural and suburban areas.