An FHA loan is a home mortgage insured by the Federal Housing Administration (FHA), a branch of the US Department of Housing and Urban Development (HUD). Because these loans are backed by the government, lenders can offer mortgage approvals with looser requirements. FHA financing is highly popular among first-time homebuyers because it permits low down payments and flexible credit score thresholds.
The minimum down payment required for an FHA loan depends on your credit score: - FICO Score of 580 or Higher: You qualify for the minimum down payment of exactly 3.5% of the purchase price. - FICO Score between 500 and 579: You must make a down payment of at least 10% of the purchase price. This down payment can come from your personal savings or be gifted to you by a family member.
To plan your down payment savings goals, see our down payment calculator or check our general mortgage calculator.
Because of the low down payment, FHA requires borrowers to pay Mortgage Insurance Premiums (MIP) to protect the lender if you default. MIP has two parts: - Upfront MIP (UFMIP): Typically 1.75% of the loan amount, paid at closing or rolled into the total mortgage balance. - Annual MIP: Paid monthly as part of your mortgage statement, ranging from 0.4% to 0.75% of the loan amount depending on your loan size and down payment.
To check how other government-backed loans compare, try our va mortgage calculator or check our home affordability planner.
FHA guidelines generally require a front-end housing DTI ratio (mortgage payment plus taxes and insurance) of 31% or lower, and a back-end total DTI ratio (all monthly debt payments combined) of 43% or lower. However, lenders can approve higher ratios—up to 40% front-end and 50% back-end—if the borrower has strong compensating factors like cash reserves or an excellent credit score.
To calculate your current debt metrics, see our debt-to-income ratio calculator or check our amortization calculator.
The government sets annual limits on the maximum amount you can borrow using an FHA loan. These limits vary by county and are adjusted each year based on local housing market values. Low-cost counties have a standard "floor" limit, while high-cost metropolitan counties have a "ceiling" limit that matches conforming loan thresholds.
FHA loans require a specialized appraisal to ensure the property meets strict health and safety standards. The home must be safe, structurally sound, and secure. If the appraiser identifies issues like peeling paint, broken handrails, or roof damage, these repairs must be completed before the loan can close.
For most FHA loans signed today with a 3.5% down payment, the annual MIP remains for the entire life of the loan. The only way to eliminate FHA mortgage insurance is to pay off the mortgage or refinance the loan into a conventional mortgage once you have built up at least 20% equity in the property.