What is an FHA loan? Requirements, rates and more

FHA loans are government-backed mortgage loans with more lenient buyer requirements than conventional loans, providing a viable option for first-time homebuyers or those with lower credit scores. These loans can make homeownership more attainable, although they require borrowers to pay mortgage insurance premiums (MIPs) regardless of the down payment amount.

What is an FHA loan?

An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA) and offered by private FHA mortgage lenders. FHA loans often have less strict requirements than conventional loans, making them popular with first-time homebuyers and younger buyers.

How do they work?

FHA loans work like most other mortgages, only they’re backed by the federal government. This doesn’t mean that the government provides the funds directly to borrowers, however. FHA loans are widely available from private lenders, who can offer them to borrowers with lower credit scores and higher debt, knowing that the government will protect part of their investment in the event of default.

In terms of options, FHA loans are similar to conventional loans. You can choose either a fixed or adjustable interest rate, along with a loan term of 15 or 30 years.

You’ll still pay closing costs for an FHA loan, such as appraisal and origination fees. The FHA allows home sellers, home builders or mortgage lenders to cover up to 6% of these costs.

FHA loan insurance

In addition to the typical closing costs, FHA borrowers must pay upfront and annual mortgage insurance premiums (MIPs). Similar to private mortgage insurance for conventional loans, MIPs protect the lender if you were to stop repaying your loan. These MIPs show up as both a fee at closing and an additional charge on your monthly mortgage payment. How much you’ll pay annually depends on the size of your down payment and the length of your loan term.

If you put down 10% or more, you can eliminate FHA mortgage insurance after 11 years. If you put down less than 10%, you’ll pay mortgage insurance until you pay off the loan, sell the home or refinance to a conventional mortgage.

FHA loan rates

FHA loan rates will vary from one lender to another, but generally they are competitive with, and often slightly lower than, rates for conventional loans. According to Bankrate data, the national average 30-year FHA mortgage APR was 6.51% as of May 21, 2026. Meanwhile, the national average APR for a 30-year conventional loan was 6.63%.

FHA loan requirements

Here’s an overview of the requirements for an FHA loan:

• Credit score: Your credit score will determine your down payment requirements. With a score of at least 580, you’ll need to make a minimum down payment of 3.5%. If your score falls between 500 and 579, you’ll need at least a 10% down payment. Individual lenders may require higher scores. A score below 500 could disqualify you from an FHA loan.
• Down payment: You’ll need to put at least 3.5% or 10% down, depending on your credit score. You may be eligible for down payment assistance to help cover the cost.
• Debt-to-income (DTI) ratio: No more than 31% of your income should go toward mortgage payments, and no more than 43% should go to debt payments overall — though some lenders will allow higher ratios if, for example, you can make a large down payment. Having a higher DTI ratio could disqualify you for an FHA mortgage.
• Occupancy rules: FHA loans are intended for primary residences, meaning you must live in the home most of the time. It can have up to four units, as long as you live in one as your primary residence.
• Mortgage insurance premiums: MIP involves an upfront premium of 1.75% of the loan principal, typically paid at closing, plus annual premiums. These may be between 0.15% and 0.75% of your loan amount — depending on your down payment, loan amount and loan term — and are usually paid monthly.
• Inspection and property requirements: To get an FHA loan, a HUD-approved appraiser must assess the property’s market value and verify that it meets HUD’s basic standards. These include being structurally sound and having adequate ventilation, as well as working heating, plumbing and electrical systems, among other requirements.
• Loan limits: In 2026, you can borrow between $541,287 and $1,249,125 for single-family homes.

Types of FHA loans

There are several types of FHA loans, including:

• Basic home mortgage loan or 203(b) loan

  The 203(b) loan is the FHA’s main home loan program for buying a home or refinancing. The borrower is eligible for approximately 96.5% financing.

• Rehabilitation mortgage or 203(k) loan

  An FHA rehabilitation mortgage 203(k) loan covers the home’s purchase price and repairs. This type of FHA construction loan comes in Standard and Limited options, which cover different types of renovations and have different loan limits. These loans are best for someone buying a fixer-upper.

• Disaster victim mortgage or 203(h) loan

  If you’ve lost your home due to a presidentially designated disaster and need to rebuild or buy a new home, you could qualify for an FHA 203(h) loan with no down payment.

• Home equity conversion mortgage (HECM)

  An HECM is a reverse mortgage insured by the federal government for homeowners aged 62 and older. While marketed as a stream of tax-free income, HECMs carry severe, long-term financial risks. Because interest and fees compound over time, this product rapidly drains the equity you’ve built in your home. Furthermore, borrowers remain entirely responsible for property taxes, homeowners insurance, and maintenance; failing to keep up with these costs can trigger a technical default and lead to foreclosure. For the vast majority of seniors, it is an exceptionally expensive borrowing method that frequently leaves heirs with little to no remaining estate.

• Energy–efficient mortgage (EEM)

  An Energy–efficient mortgage (EEM) is designed for the purchase of an energy-efficient home, or to upgrade a home to make it more energy-efficient. These upgrades might include insulation, solar panels or energy-efficient appliances.

• Graduated payment mortgage or 245(a) loan

  A graduated payment mortgage or 245(a) loan is an uncommon type of mortgage that comes with payments that start small and increase over time. They’re most often used by those who expect to make more money in the future.

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Pros and cons of FHA loans

Pros

• Lower credit score requirements of 500 or 580, depending on size of down payment
• May have lower interest rates than conventional loans
• Can provide a quicker path to home ownership than improving credit to qualify for a conventional loan

Cons

• Required mortgage insurance premiums on all loans
• FHA loan limits are often lower than conventional loan limits
• Often-lengthier appraisal process may encourage sellers to select other offers

Who is an FHA loan best for?

If your credit score is at least 620, you’re almost always better off with a conventional loan. That way, you won’t have to pay mortgage insurance for the entire loan term — you can cancel PMI when you accumulate 20% equity in your home. However, if you fall into any of these categories, an FHA loan may be a good choice:

• You’re a first-time homebuyer: It can take years to build your credit and save up for a down payment. But because FHA loans have more lenient credit and down payment requirements, you might not have to wait as long to purchase your first home.
• You have a lower credit score: If your credit score is on the lower side, an FHA loan can be a great option. It can help you get into a home more quickly, and with a lower down payment.
• You can’t afford a large down payment: While you can put down as little as 3% with a conventional loan, you’ll generally need a higher credit score to do so. However, with an FHA loan, you still only need to put down 3.5% — even with a credit score as low as 580.

Frequently asked questions

• How do I apply for an FHA loan?

  When you’re ready to apply for an FHA loan, start by confirming your eligibility for the program. If you meet the credit score and DTI requirements, use our affordability calculator to estimate your budget based on your income, expenses and down payment savings. The next step is to explore lenders, narrow down your list of options and apply for a mortgage.

• How do FHA loans compare to other loan types?

  Compared to conventional loans, FHA loans offer a more generous credit score threshold but also have a more extensive mortgage insurance requirement. Compared to VA loans and USDA loans, FHA loans are open to anyone who qualifies. VA loans are only for active-duty military, veterans and surviving spouses, while USDA loans are only for low- to moderate-income homebuyers in certain rural areas.

• What would disqualify you from an FHA loan?

  Possible FHA loan disqualifiers include:

  • Having a credit score below the minimum threshold (580 with a minimum 3.5% down payment) or 500-579 with a minimum 10% down payment)
  • Having a higher debt-to-income ratio than around 31% for mortgage payments or 43% for overall debt payments
  • Having delinquent student loans
  • Already having an FHA mortgage that’s not paid off

• What are the problems with FHA loans for sellers?

  Sellers may be hesitant to sell to a buyer with an FHA loan because FHA loans typically require a lengthier, more thorough appraisal process than that of conventional loans. The FHA process’ appraisal determines the property’s market value and also makes sure it meets safety standards. This may encourage sellers to accept an offer from a buyer with a conventional loan.

• What are disadvantages of an FHA loan?

  FHA downsides include:

  • You’ll be required to pay mortgage insurance premiums.
  • The appraisal process is often lengthier than that of conventional mortgage loans.
  • Sellers may decide to accept another offer that has a conventional loan thanks to the quicker and less stringent appraisal process.