FHA Loan Guide

FHA Loan Requirements

The Federal Housing Administration does not lend money directly. Instead, it insures loans made by FHA-approved lenders, reducing their risk and allowing them to offer more flexible terms to borrowers. Here are the key requirements.

• Credit score — 580+ for 3.5% down; 500-579 for 10% down
• Down payment — Minimum 3.5% of purchase price (can be gifted from family)
• Debt-to-income ratio — Front-end (housing costs) up to 31%; back-end (all debts) up to 43%, sometimes 50% with compensating factors
• Employment — Two years of steady employment, ideally with the same employer or in the same field
• Primary residence only — FHA loans cannot be used for investment properties or vacation homes
• FHA loan limits — Varies by county; ranges from roughly $472,000 to $1,089,300 in high-cost areas (2026)

FHA Mortgage Insurance (MIP)

This is the biggest trade-off of FHA loans. Mortgage Insurance Premium protects the lender if you default, and it comes in two parts:

• Upfront MIP — 1.75% of the loan amount, usually rolled into the loan balance
• Annual MIP — 0.55% of the loan balance, paid monthly as part of your mortgage payment
• Duration — If you put less than 10% down (most FHA borrowers), MIP lasts for the entire life of the loan. With 10%+ down, MIP drops off after 11 years

On a $290,000 loan (after 3.5% down on a $300,000 home), annual MIP adds about $133/month to your payment. Over 30 years, that totals roughly $48,000 in insurance costs.

FHA Property Standards

FHA requires an appraisal that evaluates both value and minimum property conditions. The home must be safe, structurally sound, and livable. Common issues that can fail an FHA appraisal include:

• Peeling or chipping paint (especially in pre-1978 homes due to lead concerns)
• Roof with less than 2 years of remaining life
• Foundation cracks or structural damage
• Missing handrails on stairs
• Non-functional heating, plumbing, or electrical systems

FHA vs Conventional Loans

Choosing between FHA and conventional depends on your credit score, down payment, and how long you plan to keep the loan.

• Credit below 700 — FHA usually wins with lower rates and easier qualification
• Credit 700+ — Conventional often offers better rates and removable PMI at 20% equity
• Small down payment — FHA at 3.5% vs conventional at 3-5%, but conventional PMI can be canceled
• Long-term cost — FHA's lifetime MIP makes it more expensive over 30 years for borrowers who stay in the home
• Property flexibility — Conventional has fewer property condition requirements