What Is a Fedꦰerꦬal Housing Administration (FHA) Loan?

A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other lender approved by the agency. FHA loans require a lower minimum down payment than many 澳洲幸运5官方开奖结果体彩网:conventional loans, and applicants may have 澳洲幸运5官方开奖结果体彩网:lower credit scores than the 澳洲幸运5官方开奖结果体彩网:best mortgage lenders usually require. 澳洲幸运5官方开奖结果体彩网:FHA loans are designed to help low- to moderate-income families attain homeoꩵwnersh꧃ip, and they are particularly popular with first-time homebuyers.

How Does an FHA Loan Work?

FHA loan criteria allow for borrowers with a lower-than-average credit score of at least 580 to qualify for an FHA-insured mortgage. Your credit score represents a numerical summary of your creditworthin༒ess based on your credit history, such as how well you repay your debts.

FHA loan criteria also allow borrowers to put down a smaller down payment at the loan's closing. The FHA mandates that the 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) ratio cannot exceed 96.5% of the value of a home with an FHA loan. In other words, you can have a down payment as low as 3.5% of the purchase price, meaning you can qualify for FHA financing of up to 95.5% of the property's value.

However, if your credit score falls between 500 and 579, you can still get FHA financing, but you will need to make a down payment of at least 10%, meaning you can only finance up to 90% of the property's value.

With FHA loans, the down payment can come from savings, a financial gift from a family member, or a grant for down payment assistance.

The Bank's Role in an FHA Loan

The FHA doesn't actually lend anyone money to buy a home. Instead, FHA-approved lenders via banks or other financial institutions issue the mortgage loans.

The role of the FHA involves guaranteeing or insuring the loan, making it easier for borrowers to get approved since the lender does not bear the default risk.

Borrowers who qualify for an FHA loan are required to purchase 澳洲幸运5官方开奖结果体彩网:mortgage insurance, with the premium payments going to the FHA.

History of the FHA Loan

Congress created the FHA in 1934 during the 澳洲幸运5官方开奖结果体彩网:Great Depression. At that time, the housing industry was in trouble: Default and foreclosure rates had skyrocketed, 50% down payments were commonly required, and the mortgage terms were impossible for ordinary wage earners to meet. As a result, the U.S. was primarily a nation of renters, and only one in 10 households owned their homes.

After the government created the FHA to reduce the risk to lenders and make it easier for borrowers to qualify for home loans, the homeownership rate in the U.S. steadily climbed, reaching an all-time high of 69.2% in 2004, according to research from the Federal Reserve Bank of St. Louis. By the end of 2024, the rate stood at 65.7%.

Other Types of FHA Loans

In addition to traditional mortgages, the FHA offers several other home loan types.

Home Equity Conversion Mortgage (HECM)

This is a 澳洲幸运5官方开奖结果体彩网:reverse mortgage program that helps homeowners age 62 and older convert the equity in their homes to cash while retaining the home's title. The homeowner can take the funds as a lump sum, in a fixed monthly amount, in a 澳洲幸运5官方开奖结果体彩网:line of credit, or some combination.

FHA 203(k) Improvement Loan

This loan factors the cost of certain repairs and renovations into the amount borrowed. It's helpful for those willing to buy a fixer-upper and put some sweat equity into their home.

FHA Energy Efficient Mortgage

This program is similar to the FHA 203(k) 澳洲幸运5官方开奖结果体彩网:improvement loan program, but it's focused on upgrades that can lower your utility bills, such as new insulation or solar or wind energy systems.

Section 245(a) Loan

This program works for borrowers who expect their incomes to increase. The Graduated Payment Mortgage (GPM) starts with lower monthly payments that increase over time. The Growing Equity Mortgage (GEM) has scheduled increases in monthly 澳洲幸运5官方开奖结果体彩网:principal payments. Both promise shorter loan terms.

What Are FHA Loan Requirements?

Your 澳洲幸运5官方开奖结果体彩网:mortgage lender will evaluate your qualifications for an FHA lꦯoan as it would with any mortgage applicant, starting with a check to see that you have a valid Social Security number, reside lawfully in the U.S., and are of legal age (according to your state's laws).

FHA loan criteria are less rigid in some ways than a bank's usual loan criteria. However, there are also some more stringent requirements.

Whether or not it's an FHA-guaranteed loan, a lender will examine your financial history when you apply for a mortgage.

Credit Scores and Down Payments

FHA loans are available to individuals with credit scores as low as 500, which represents the "poor" range for a 澳洲幸运5官方开奖结果体彩网:FICO score.

If your credit score is between 500 and 579, you may be able to secure an FHA loan, assuming you can afford a down payment of at least 10%. If your credit score is 580 or higher, you can get an FHA loan with a down payment of as little as 3.5%. 

By comparison, applicants typically need a credit score of at least 620 in order to qualify for a conventional mortgage. The down payment r🎐equired byඣ most banks varies between 3% and 20%, depending on how eager they are to lend money at the time you apply.

History of Honoring Debts

A lender will look at your work history as well as your last two years of payment history on your credit report.

People who fall behind on 澳洲幸运5官方开奖结果体彩网:federal student loan payments or income tax payments may be required to agree to a satisfactory repayment plan for those debts. A history of bankruptcy or foreclosure may prove problematic, too.

Typically, to qualify for an FHA loan—or any type of mortgage—at least two years must have passed since the borrower experienced 澳洲幸运5官方开奖结果体彩网:bankruptcy or 澳洲幸运5官方开奖结果体彩网:foreclosure, and they must have established good credit and have their financial affairs in order since then. However, borrowers can qualify for exceptions if they have experienced extenuating circumstances, such as serious illness.

Proof of Steady Employment

The FHA-approved lender will want assurances that the applicant can rജepay the mortgage loan. As a result, lenders will ask for evidence of recent and steady employment, documented by tax return꧅s and pay stubs.

If you've been self-employed for less than two years but more than one year, you may still qualify if you have a solid work and income history in the same or a related occupation for the two years before becoming self-employed.

Sufficient Income

Your mortgage payments, 澳洲幸运5官方开奖结果体彩网:property taxes, mortgage insurance and 澳洲幸运5官方开奖结果体彩网:homeowners insurance premiums, and any 澳洲幸运5官方开奖结果体彩网:homeowner association fees must generally total less than 31% of your 澳洲幸运5官方开奖结果体彩网:gross income. Banks call this the 澳洲幸运5官方开奖结果体彩网:front-end ratio.

Meanwhile, your 澳洲幸运5官方开奖结果体彩网:back-end ratio, which consists of your mortgage payment and all other monthly consumer debts, should be less than 43% of your gross income.

FHA Mortgage Insurance Premiums (MIPs)

An FHA loan requires that you pay two types of 澳洲幸运5官方开奖结果体彩网:mortgage insurance premiums (MIPs)—an upfront MIP and an annual MIP, which is paid monthly. The upfront MIP is equal to 1.75% of the base loan amount.

For example, if you're issued a home loan for $350,000, you'll pay an upfront MIP of 1.75% x $350,000 = $6,125. You can pay the upfront MIP at the time of closing or roll the amount into the loan.

These payments are deposited into an escrow account that the U.S. Treasury Department manages. If you end up defaulting on your loan, the funds will go toward the mortgage repayment.

After the initial, one-time payment, borrowers make MIP payments every month. Those payments can range from 0.15% to 0.75% annually of the loan amount. Rates differ depending on the loan amount, the length of the loan, and the home's 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) ratio.

Let's say you have an annual MIP of 0.55%. In that case, a $350,000 loan would result in annual MIP payments of 0.55% x $350,000 = $1,925 (or $160.42 monthly).

These monthly premiums are paid in addition to the one-time upfront MIP payment. You will have to make annual MIP payments for either 11 years or the life of the loan, depending on the length of the loan and the LTV.

While you can no longer take a tax deduction for the amount you pay in premiums, you can still deduct mortgage interest, if you 澳洲幸运5官方开奖结果体彩网:itemize your deductions rather than taking the 澳洲幸运5官方开奖结果体彩网:standard deduction on your taxes.

Homes That Qualify for an FHA Loan

Usually, the property you want to finance must become your principal residence and mu🌌st be owner-occupied. In other words, the FHA loan program is not intended for investment or rental properties.

Detached and semi-detached houses, townhouses, row houses, and condominiums within FHA-approved condo projects are all eligible fo🍰r FHA financing.

Also, you will need a property 澳洲幸运5官方开奖结果体彩网:appraisal from an FHA-approved appraiser, and the home must meet certain minimum standards. Homes that are in such disrepair that they do not meet the FHA's requirements are 澳洲幸运5官方开奖结果体彩网:deemed uninsurable. If the home doesn't meet these standards and the seller won't agree to make the required repairs, you must pay for the repairs at closing. (In this case, the funds are held in escrow until the repairs are made.)

What Are the Federal Housing Admin💛istration Loan Limits?

FHA loans have limits on how much you can borrow. These are set by region, with lower-cost areas having a lower limit and high-cost areas having a higher one.

For 2025, the limits range from $524,225 to $1,209,750, which the FHA refers to as its "floor" and its "ceiling." There are "special exception" regions—including Alaska, Hawaii, Guam, and the U.S. Virgin Islands—where very high construction costs make the limits even higher.

Elsewhere, the limit is set at 115% of the median home price for the county, as determined by the U.S. Department of Housing and Urban Development (HUD).

The chart below lists the 2025 loan limits:

Fede✅ral Housing Administration (FHA) Loan Relief

When you get an FHA loan, you may be eligible for loan relief if you experience a legitimate financial hardship, such as a loss of income or a large increase in living expenses. For example, the FHA has several forbearance plans that can allow you to pause or reduce your mortgage payments for a pe🍒riod of time.

Another program, the FHA Home Affordable Modification Program (HAMP), permanently lowered monthly mortgage payments to an affordable level. However, the program has been "temporarily suspended" through April 30, 2025.

Advantages and Disadvantages of FHA Loans

FHA loans are often the best source of a mortgage for borrowers who are unable to obtain financing through private lenders. They may qualify for an FHA loan with a lower credit score, and/or greater amounts of debt, and a higher 澳洲幸运5官方开奖结果体彩网:debt-to-income ratio.

However, because FHA borrowers are often riskier, FHA loans usually come with somewhat higher interest rates and require borrowers to pay mortgage insurance premiums both upfront and monthly. FHA loans can only be used for your p𒁃rimary residence and come with borrowing limits.

The Bottom Line

The FHA loan is a path to homeownership for people that banks might reject otherwise because they have a less-than-stellar credit score or little cash available for a down payment. However, borrowers who can afford a substantial down payment may be better off going with a conventional mortgage from one of the best lenders. That way, ෴they can avoid the monthly 🌌mortgage insurance payments for the FHA loan and get a lower interest rate.