Everything You Need to Know About FHA Loans

FHA loan requirements

If you want to buy a home but you don’t have 20% down or perfect credit. You’re in luck!

With a low 580 credit score requirement and just a 3.5% down payment, FHA loans are the easiest type of mortgage to qualify for.

In this article, we will go over the FHA loan requirements, credit guidelines, loan limits, and everything else you need to know.

Editor’s note: Due to the coronavirus pandemic some lenders have increased their credit score requirements.

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What is an FHA Loan?

FHA stands for the Federal Housing Administration, a Government agency created in 1934 by HUD, the U.S. Department of Housing and Urban Development to increase homeownership in America.

The FHA insures loans offered by private lenders and does not offer mortgage loans directly. Borrowers pay mortgage insurance (MIP), usually around 0.85 percent of the loan amount annually.

In the event a borrower defaults on an FHA-insured loan the lender will be reimbursed by HUD thus reducing their risk allowing them to loosen their requirements.

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FHA Loan Requirements

  • 580 credit score with 3.5% down
  • 500-579 score requires 10% down
  • 43% maximum DTI ratio
  • Two years of stable employment history
  • Must be borrowers primary residency
  • Mortgage insurance is required

2020 FHA Loan Requirements

FHA Credit Requirements

  • 580 FICO score with a 3.5% down paymentFHA loan credit requirements
  • 500-579 FICO score with a 10% down payment
  • No more than one late payment on any account in the past 12 months
  • No mortgage late payments in the past 6 months
  • Two year waiting period after bankruptcy or foreclosure
  • No more than $1,000 in unpaid collections

Borrowers with a credit rating between 500-579 will need a minimum down payment of 10%, with a 580 credit score just 3.5% is needed down.

Lenders look at more than just your credit score, what’s on your credit report is just as important. Late payments or significant debt can cause loan applicants to get denied.

First-time Homebuyers

In 2019 approximately 46% of first-time buyers used an FHA loan to buy their first home.

Because they are only for owner-occupied residences, you cannot have two FHA loans open unless you must move for work or your family outgrows your current home.

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First-Time Homebuyer Down Payment Assistance

FHA-insured mortgages allow you to use homebuyer programs. If you are a first-time homebuyer, you may qualify for downpayment assistance or grants. You can search for your available state Government programs on the HUD website.

For local down payment assistance programs, check out your local county or city website for more information.

Low-Income Buyers

These loans are suitable for low-to-median income first time home buyers. FHA allows lenders more flexibility on debt-to-income ratios than traditional mortgages.

Sometimes lenders can approve up to a 50% DTI ratio.

Many low-income borrowers can get approved for a home loan through the FHA.

Who should get an FHA Mortgage?

fha loan requirements

FHA loans are perfect for anyone that’s looking to purchase a home because they come with competitive mortgage rates and are easier to qualify for than traditional loans.

Candidates for FHA Loans

  • Borrowers with low credit scores
  • Anyone that cannot afford a large down payment
  • If your down payment is a gift
  • High debt-to-income ratio
  • First-time homebuyers

Down Payment Gifts

Another excellent benefit for FHA borrowers is that the down payment can be a gift.

The down payment of 3.5% can be a gift, as long as the person gifting the down payment meets FHA guidelines.

This is a way that an FHA loan can provide the borrower 100% financing with no down payment out of pocket. You will need to fill out a gift letter for the mortgage down payment.

Closing Costs

Like most types of home loans, FHA-insured mortgages will have closing costs. These fees include origination fees, home appraisals, title insurance, and more. Typically, FHA closing costs are 2% – 5% of the purchase price, depending on the lender.

You should always compare loan offers from multiple FHA lenders to make sure you’re getting the most competitive rates and lowest fees.

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FHA Loan Limits

The loan limits were recently increased from  $275,665 to $294,515 for low-cost areas.

This is the maximum loan limits for FHA loans in 60% of the U.S. The limits go up to $679,650 is high-cost areas, such as Los Angeles and San Francisco.

# of Units Low-Cost area loan limit High-Cost area loan limit
1 Unit $294,515 $679,650
2 Units $352,950 $814,500
3 Units $426,625 $984,525
4 Units $530,150 $1,223,475

Loan Limits for Guam, Hawaii, Alaska, U.S. Virgin Islands

# of Units Loan limit
1 Unit $721,050
2 Units $923,050
3 Units $1,115,800
4 Units $1,386,650

FHA Loan Infographic

FHA loan infographic

Mortgage Insurance Premium

FHA loans require mortgage insurance premiums, or MIP (mortgage insurance premium) or PMI (private mortgage insurance).

There are two types of mortgage insurance.

  • Up-front mortgage insurance premium of 1.75%. MIP cannot be rolled into the loan
  • Annual insurance will be included in your escrow payment

FHA Mortgage Insurance Chart

fha mip chart

FHA vs. Conventional Loans


  • Low credit requirements
  • 3.5 percent down payment
  • Down payment can be a gift from a friend or family member
  • Higher debt-to-income ratio allowed
  • Easier to qualify for
  • They are assumable
  • No prepayment penalty
  • Sellers can pay up to 6% of the closing costs
  • Wide variety of FHA Lenders to choose from


  • Lower loan limits
  • Homes that need renovations do not qualify
  • Mortgage insurance is required regardless of how much you put down
  • MIP costs are higher
  • Strict underwriting requirements

Conventional vs. FHA loan Comparison Chart

FHA vs conventional loans comparison chart

FHA Property Standards

30 year, 15 year fixed-rate or Adjustable-rate mortgage loans

An FHA loan can take various forms. It may be a fixed-rate mortgage or a 15 year fixed rate or 30-year fixed-rate, adjustable-rate loans are also available.

203(k) Loans

If you would like to purchase a home with an FHA loan and get additional money to make repairs or renovations, you can with the FHA 203k loan program.

This renovation loan will allow you to purchase a property and get up to $35,000 additional cash to make renovations or repairs.

Because 203k rehab loans provide more cash than the purchase price, they view it as a risker type of loan for lenders.

Because of this, the minimum credit score is 640. However, all other loan requirements are very similar to a standard FHA(b) loan.

You should speak to a 203k lender to get more details. Click here for more 203k loan details from HUD.


Who can qualify for an FHA loan?

FHA loans are popular because they are one of the easiest types of home loans to qualify for. If you have at least a 500 credit score you may qualify with 10% down. With a 580 credit score, just 3.5% is needed.

How long does it take to close on a house?

The average time to close is 48 days. However, the time to close depends on several factors. You can speed up the process by getting all of your documents to your loan officer as quickly as possible and responding to any requests promptly.

Are FHA loans only for first-time homebuyers?

No. Anyone can qualify for an FHA mortgage regardless if they’re a first-time buyer or not. You cannot get a second FHA loan at the same time unless you met certain conditions.

The Bottom Line

FHA loans offer a wealth of benefits for many home buyers. They are easier to qualify for, offer lower interest rates and lower loan fees.

They’re available for many people who would not otherwise qualify for a home loan due to poor credit or sometimes, no credit history at all.

Whether you’re a first time home buyer or looking for another home, FHA loans are a great option. Talk to an FHA approved lender for more information or to apply.

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