What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. Because the federal government backs these loans against default, lenders can offer them with lower credit score and down payment requirements than conventional mortgages. FHA loans are one of the most popular options for first-time homebuyers for exactly this reason.
You apply through a private lender — a bank, credit union, or mortgage company — but the FHA sets the floor on what you need to qualify. Lenders can add their own stricter requirements on top.
Credit score requirements
The FHA sets minimum credit score thresholds, but lenders routinely require higher:
| Credit score | Minimum down payment | What it means |
|---|---|---|
| 580 or above | 3.5% | Standard FHA — most buyers qualify here |
| 500–579 | 10% | FHA allows it; most lenders won't |
| Below 500 | Not eligible | Does not meet FHA minimum |
Down payment requirements
FHA loans require as little as 3.5% down — the lowest of any major loan type for buyers who don't qualify for VA or USDA loans.
- 3.5% down (580+ credit score): On a $350,000 home, that's $12,250 out of pocket.
- 10% down (500–579 credit score): On a $350,000 home, that's $35,000.
- Gift funds are fully allowed: The entire down payment can come from a family member gift — conventional loans restrict this significantly.
- Down payment assistance programs: FHA loans are compatible with most state and local DPA programs, which can cover part or all of the required down payment.
FHA mortgage insurance (MIP) — what it actually costs
All FHA loans require mortgage insurance regardless of down payment. It comes in two parts:
| MIP type | Cost | How it's paid |
|---|---|---|
| Upfront MIP (UFMIP) | 1.75% of the loan amount | Due at closing — can be financed into the loan |
| Annual MIP | 0.55% per year (most loans) | Split into 12 monthly payments |
On a $350,000 loan: upfront MIP is $6,125 (often rolled into the loan), and annual MIP is $1,925/year or $160/month added to your payment.
Debt-to-income (DTI) limits
FHA loans allow higher DTI ratios than conventional mortgages, making them more accessible to buyers with existing debt:
- Front-end DTI (housing only): Your total housing payment — principal, interest, taxes, insurance, and MIP — should not exceed 31% of your gross monthly income. Lenders may stretch this to 40% with strong compensating factors.
- Back-end DTI (all debts): All monthly debt payments combined — housing, car loans, student loans, credit cards — should not exceed 43% of gross income. With compensating factors like a high credit score or large reserves, some lenders approve up to 50%.
FHA loan limits for 2026
FHA loan limits are set county by county based on local median home prices. For 2026, the limits for a single-family home are:
| Area type | 2026 loan limit | Examples |
|---|---|---|
| Low-cost areas (floor) | $524,225 | Most of the Midwest, South, rural areas |
| High-cost areas (ceiling) | $1,209,750 | San Francisco, NYC, Los Angeles, Seattle |
| Alaska, Hawaii, Guam, USVI | $1,814,625 | Special high-cost designation |
For most buyers in average-cost markets, the $524,225 floor covers typical home prices. If you're buying in an expensive metro, check your specific county — limits vary by zip code within the same metro area.
Other FHA eligibility requirements
- Primary residence only: FHA loans cannot be used for investment properties or vacation homes. You must intend to live in the home as your primary residence within 60 days of closing.
- FHA-approved lender: You must apply through an FHA-approved lender — most major banks, credit unions, and mortgage companies qualify.
- FHA appraisal required: The property must meet FHA minimum property standards (MPS). Homes with significant safety issues, roof damage, or structural problems may require repairs before the loan can close.
- Waiting periods after major events: Chapter 7 bankruptcy requires a 2-year wait; Chapter 13 may qualify after 1 year of on-time payments. Foreclosure requires a 3-year wait.
- Legal US residency: You must be a US citizen, lawful permanent resident, or eligible non-permanent resident alien.
- Steady employment history: Lenders typically want to see 2 years of employment history, though gaps can be explained. Self-employed borrowers need 2 years of tax returns.
FHA vs conventional — when FHA wins
FHA is typically the better choice when:
- Your credit score is between 580–660 (conventional PMI rates get very expensive below 700)
- You want to put less than 5% down and use gift funds
- You have higher debt loads (DTI above 43%)
- You're recovering from past credit issues
Conventional becomes better when your credit is strong (700+) and you can reach 20% down — because you avoid both upfront MIP and lifetime MIP. See our full FHA vs conventional comparison for a side-by-side cost breakdown.
How much house can you actually afford with an FHA loan?
Meeting the FHA requirements is step one. Step two is understanding your real budget — how much home the qualifying rules actually let you buy. The 28/36 rule is the standard framework:
The 28/36 rule — the starting point
The most widely used affordability guideline is the 28/36 rule:
- 28% rule: Your total monthly housing payment — principal, interest, taxes, and insurance (PITI) — should not exceed 28% of your gross monthly income.
- 36% rule: Your total debt payments, including housing, car loans, student loans, and credit cards, should not exceed 36% of gross monthly income.
These are guidelines, not hard rules. FHA loans allow DTI up to 43% and sometimes higher. But staying within 28/36 gives you a comfortable buffer against financial stress.
For the full budgeting walkthrough — salary-to-home-price tables, the step-by-step calculation, hidden costs, and how much to have saved — see our dedicated guides: How Much House Can I Afford? and the FHA-specific version, How Much House Can I Afford With an FHA Loan?. Then run your own numbers in the FHA mortgage calculator with your state's tax rate pre-filled.