# Federal Housing Administration (FHA) Loan: Requirements, Limits, How to Qualify

## What Is a Federal 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 [conventional loans](https://www.investopedia.com/terms/c/conventionalmortgage.asp), and applicants may have [lower credit scores](https://www.investopedia.com/how-to-buy-house-with-bad-credit-5213590) than the [best mortgage lenders](https://www.investopedia.com/the-best-mortgage-lenders-11714101) usually require. [FHA loans are designed to help](https://www.investopedia.com/what-is-an-fha-loan-8636839) low- to moderate-income families attain homeownership, and they are particularly popular with first-time homebuyers.

### Key Takeaways

*   FHA loans are mortgages intended for [certain borrowers](https://www.investopedia.com/fha-single-family-title-ii-5235461) who might find it difficult to obtain loans otherwise.
*   The federal government insures FHA loans issued by private lenders, such as banks.
*   FHA borrowers must pay two types of mortgage insurance premiums (MIPs)—one upfront and the other monthly.
*   Due to FHA insurance, banks are more willing to lend to homebuyers with low credit scores and small down payments.
*   First-time homebuyers may find that an FHA loan is their most affordable mortgage option.

![FHA Loan](https://www.investopedia.com/thmb/bhSZJN2DC7LieRR4qzVZj1VaBeM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FHAnew-V1-a128f12bf4584ae8a9a5b7d0214cd8e4.png)

*Investopedia / Jiaqi Zhou.*

## How an FHA Loan Works

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 creditworthiness 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 [loan-to-value (LTV) ratio](https://www.investopedia.com/terms/l/loantovalue.asp) 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](https://www.investopedia.com/terms/g/grant.asp) 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 [mortgage insurance](https://www.investopedia.com/terms/m/mortgage-insurance.asp), with the [premium](https://www.investopedia.com/terms/i/insurance-premium.asp) payments going to the FHA.  

## History of the FHA Loan

Congress created the FHA in 1934 during the [Great Depression](https://www.investopedia.com/terms/g/great_depression.asp). 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%.

> **Important**
>
> Though principally designed for lower-income borrowers, FHA loans are available to everyone, including those who can afford conventional mortgages. In general, borrowers with good credit and strong financials will be better off with a conventional mortgage, while those with poorer credit and more debt, as well as would-be homebuyers who simply don't have the cash for a larger down payment, can benefit from an FHA loan.

## Other Types of FHA Loans

In addition to traditional mortgages, the FHA offers several other [home loan types](https://www.investopedia.com/affordable-home-loan-options-you-didnt-know-you-could-qualify-for-8719664).

### Home Equity Conversion Mortgage (HECM)

This is a [reverse mortgage](https://www.investopedia.com/mortgage/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 [line of credit](https://www.investopedia.com/terms/l/lineofcredit.asp), 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) [improvement loan](https://www.investopedia.com/articles/personal-finance/121216/home-improvement-loans-what-are-your-best-options.asp) 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 [principal](https://www.investopedia.com/terms/p/principal.asp) payments. Both promise shorter loan terms.

## What Are FHA Loan Requirements?

Your [mortgage lender](https://www.investopedia.com/the-best-mortgage-lenders-for-bad-credit-11697459) will evaluate your qualifications for an FHA loan 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 [FICO score](https://www.investopedia.com/terms/f/ficoscore.asp).

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 required by most banks varies between 3% and 20%, depending on how eager they are to lend money at the time you apply.

> **Tip**
>
> As a general rule, the lower your credit score and down payment, the higher the interest rate you'll pay on your mortgage.

### History of Honoring Debts

A [lender](https://www.investopedia.com/the-best-va-loan-lenders-11697437) 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 [federal student loan](https://www.investopedia.com/terms/s/student-debt.asp) 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 as well.

Typically, to qualify for an FHA loan—or any type of mortgage—at least two years must have passed since the borrower experienced [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp) or [foreclosure](https://www.investopedia.com/terms/f/foreclosure.asp), 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 repay the mortgage loan. As a result, lenders will ask for evidence of recent and steady employment, documented by tax returns 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, [property taxes](https://www.investopedia.com/articles/tax/09/calculate-property-tax.asp), mortgage insurance and [homeowners insurance](https://www.investopedia.com/insurance/homeowners-insurance-guide/) premiums, and any [homeowner association fees](https://www.investopedia.com/terms/h/homeowners-association-fee-hoa.asp) must generally total less than 31% of your [gross income](https://www.investopedia.com/terms/g/grossincome.asp). Banks call this the [front-end ratio](https://www.investopedia.com/terms/f/front-endratio.asp).

Meanwhile, your [back-end ratio](https://www.investopedia.com/terms/b/back-endratio.asp), 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 [mortgage insurance premiums (MIPs)](https://www.investopedia.com/articles/mortgages-real-estate/09/federal-housing-authority.asp)—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](https://www.investopedia.com/terms/e/escrow.asp) 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](https://www.investopedia.com/mortgage-rates-5094943) differ depending on the loan amount, the length of the loan, and the home's [loan-to-value (LTV) ratio](https://www.investopedia.com/terms/l/loantovalue.asp).  

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 [itemize your deductions](https://www.investopedia.com/terms/i/itemizeddeduction.asp) rather than taking the [standard deduction](https://www.investopedia.com/terms/s/standarddeduction.asp) on your taxes.  

## Homes That Qualify for an FHA Loan

Usually, the property you want to finance must become your principal residence and must 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 for FHA financing.

Also, you will need a property [appraisal](https://www.investopedia.com/terms/a/appraisal.asp) 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 [deemed uninsurable](https://www.investopedia.com/terms/u/uninsurable-property.asp). 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.)  

> **Warning**
>
> Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report, either to the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

## What Are the Federal Housing Administration 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:

## Federal 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](https://www.investopedia.com/terms/f/forbearance.asp) plans that can allow you to pause or reduce your mortgage payments for a period 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 Sept. 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 [debt-to-income (DTI) ratio](https://www.investopedia.com/ask/answers/081214/whats-considered-be-good-debttoincome-dti-ratio.asp).

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 primary residence and come with borrowing limits.

FHA Loan Pros

*   Available to borrowers with lower credit scores
    
*   Smaller down payments
    
*   Federally backed
    

FHA Loan Cons

*   Requires insurance paid both upfront and monthly
    
*   Cannot be used for second homes or investment properties
    
*   Higher interest rates
    
*   Not all properties qualify
    

## How Do I Apply for an FHA Loan?

You can apply for an FHA loan directly with an FHA-approved bank or mortgage lender. The steps for an FHA loan will typically include gathering your financial information, pay stubs, and work history. The lender will review your credit history, income, and debts to determine your approval.

It helps to apply for [pre-approval](https://www.investopedia.com/mortgage-preapproval-4776405) of an FHA loan, whereby the lender will gather your financial information and issue a pre-approval or denial letter within a few days. Once pre-approved, you'll know how much you can afford to borrow without committing to a loan.  

## What Is the Max Amount You Can Get From an FHA Loan?

That depends on where you plan to buy and on your ability to repay the loan.

The maximum amount anyone can borrow from the FHA varies by region.

For 2025, loan limits for a single-family home, for example, range from $524,225 in low-cost areas to $1,209,750 in high-cost areas. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have special higher limits.

## How Much Does FHA Mortgage Insurance Cost?

FHA loans include both an upfront premium, which you can roll into the mortgage, and an annual premium paid monthly:  

*   The upfront fee is 1.75% of the loan amount.
*   The annual premium is 0.15% to 0.75%, depending on loan size, length, and loan-to-value ratio.

To estimate the costs, you can plug the numbers into an FHA loan calculator, several of which are available online. For example, a 30-year FHA loan at an interest rate of 7.125% on a home priced at $400,000 will have a $2,646 monthly loan payment plus a $176 monthly mortgage insurance payment.

## How Do I Get Rid of My FHA Mortgage Insurance?

In most cases, FHA mortgage insurance payments continue for either 11 years or the entire life of the loan.

The only way to end them earlier is to [refinance](https://www.investopedia.com/fha-cash-out-refinance-who-is-eligible-5198626) the mortgage with a non-FHA loan. Your FHA loan will then be paid off in full. Assuming you have at least 20% equity in the home, you should no longer be required to have [private mortgage insurance (PMI)](https://www.investopedia.com/mortgage/mortgage-guide/mortgage-insurance/), either.  

## Can You Refinance an FHA Loan With Another FHA Loan?

Yes, FHA-approved lenders may offer several refinancing options, including [FHA streamline refinance loans](https://www.investopedia.com/terms/f/fha-streamline-refinance.asp) and [FHA cash-out refinance loans](https://www.investopedia.com/what-is-an-fha-cash-out-refinance-5198645).

## What Are the Downsides of FHA Loans?

FHA loans usually come with higher interest rates than conventional mortgages and require borrowers to purchase mortgage insurance. FHA loans also have strict limits on the amount you can borrow.

## 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.

> **Article Sources**
>
> 1.  The Department of Housing and Urban Development. "[Handbook 4000.1, FHA Single Family Housing Policy Handbook](https://www.hud.gov/sites/dfiles/OCHCO/documents/40001-hsgh-update15-052024.pdf)," Pages 177–178.
>     
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