FHA loans: How they work and who qualifies

Easy to understand guidelines for home buyers and homeowners.

FHA loan graphicThe Federal Housing Administration (FHA) is a federal agency that manages home loans to low- and moderate- income borrowers. These loans are offered by lenders who are approved by the agency. An FHA borrower can get a lower credit score and lower down payment than other mortgage programs.

The agency was established in 1934 to help people who were affected by the Great Depression get into the housing market. Today, it offers a wide variety of mortgage loans that can help individuals afford their homes.

FHA Loan Terms

FHA home loan terms vary by program, but they are relatively generous, allowing borrowers who qualify to finance large portions of their home purchases at relatively low rates relative to their qualification requirements.

  • FHA Interest Rates: Fluctuate over time and vary by program. Current 30-year fixed FHA loan rates are approximately a quarter-point lower than conventional mortgages.
  • Down Payment: The current down payment for an FHA 203B home loan is 3.5%.
  • Example – $100,000 × 3.5% =$3,000
  • Credit Score: The ideal credit score for a FHA loan is 580 or greater with the minimum down payment of 3.5%. The FHA will allow a credit score of 500 with a down payment of 10%. Can you get an FHA loan with a low credit score? It's up to the lender. The lender disburses the mortgage money, not the FHA. The FHA guarantees a percentage of the loss if the home ends up in foreclosure.
  • Maximum Loan Amount: Varies by property type (i.e., one family property, two family, three family and four units). The maximum loan amount is set annual by the Federal Housing Finance Agency (FHFA). See Lending limits
  • Loan Term: Vary by program; maximum of 30 years
  • Loan Types: An FHA home loan can be used to purchase or refinance a single-family home, as well as various types of condominiums and townhouses. These types of loans can also be used for the construction of new homes or for the renovation of an existing one.

FHA Mortgage Insurance

One of the downsides of an FHA mortgage is the FHA mortgage insurance premium. An FHA mortgage insurance premium (MIP) is an additional fee you pay to protect the lender's financial interests in case you default on your FHA loan. The MIP is a percentage of the loan amount and varies depending on the length of the loan, the size of your down payment, and your credit score.
Read more about mortgage insurance

  • Upfront mortgage insurance premium: Your FHA loan will involve two payments- an upfront premium and an additional annual payment. The amount you'll pay for both depends on the size of your loan. If you're taking out a $200,000 loan, for example, your upfront mortgage insurance will be $3,500 (i.e., $200,000 × 1.75% = $3,500). The upfront fee can be financed with your loan, paid in cash at settlement, or ask the seller to pay the fee on your behalf.
  • Annual mortgage insurance premium (MIP): Annual premiums range from 0.45% to 1.05% of the loan amount, divided by 12 and paid monthly. Premiums vary by loan amount, duration, and loan to value (LTV).

FHA Loans


Young home buyer inspecting a house with real estate agentThe most popular type of FHA loan offered by the Federal Housing Administration is the Section 203(b) loan. This loan allows borrowers to take out a mortgage for up to four units. The 203(b) loan allows borrowers to take out a mortgage for up to $420,680 for a single family property in most areas. The FHA lending limits are adjusted each in November or December. Some areas of the country are designated as high-cost counties. Some California counties have loan limits as high as $970,800. The 203(b) is a fixed rate mortgage. See Lending limits for more information.

The down payment requirement for the 203(b) program is only 3.5%, making it a popular choice for first-time homebuyers. In order to qualify for a Section 203(b) loan, you must meet certain eligibility requirements, including a minimum credit score of 580. You must also have been employed steadily for the past two years and have proof of income and assets.

Streamline Rehabilitation Program

A 203(k) loan is a great way to finance the purchase price of a home and the costs associated with its renovation.

The FHA 203(k) loan is used by home buyers to finance the purchase of a home along with the rehab money.

There are two types of this loan: the full 203k and the streamlined 203k. These programs may be used for refinance mortgages.

The Limited 203(k) Streamline Program 

The Limited version of a 203k loan is designed for homes that need cosmetic repairs or upgrades. It's typically used for properties that can be renovated or repaired for less than $35,000.

The Standard 203(k) Program

The Standard 203(k) loan covers major renovations, such as structural work. The Limited Streamlined version is for non-structural projects that are under $35,000. If you're looking to do major renovations, such as the addition of a home's structure, then the full 203k is for you.

The Section 245(a) loan

The FHA 245 loan is also known as a graduated payment mortgage. This type of loan allows home buyers to increase their monthly payments over time. As a graduated payment mortgage, the monthly payments on the loan start at a low rate, and gradually increase over time.

Adjustable Rate Mortgage

The other types of loans that the FHA provides include the Section 251 loan. These are adjustable-rate mortgages. Read more about FHA adjustable rate loans

Reverse Mortgage (Section 255)

The most popular FHA loan that the FHA provides is the Section 255 home equity conversion mortgage. This type of loan allows older adults to convert their primary residence's equity into cash. The reverse mortgage program is also referred to as a HECM (home equity conversion mortgage). This type of loan allows homeowners to take out a cash advance on their home's equity, with the idea being that the loan will be repaid at a later date. There are no required monthly payments

FHA Refinance Options

Refinance your home with an FHA Loan. The Federal Housing Administration (FHA) offers a loan program that could help you save money on your mortgage. An FHA loan has eligibility requirements that may be easier to meet than those for other types of loans.

The FHA offers 6 refinance loan programs. Certainly, one of these programs will fit your needs. Read more

FHA streamline refinance graphicFHA Streamline Refinance Programs

A streamline refinance is a mortgage refinance of an existing FHA-insured loan that requires minimal credit verification and underwriting. There are two types of FHA streamline refinancing programs: credit-qualifying and non-credit-qualifying streamline refinances. FHA Streamline loans do not require appraisals.

Rate/Term Refinance Program

Title insurance, recording and excise taxes, and other refinancing costs can be included into the new loan. Refinancing often requires credit, employment, debt-to-income ratio, and asset verification. This program needs an evaluation from the Federal Housing Administration (FHA).

FHA Simple Refinance

Credit, employment, debt-to-income ratios, and asset criteria are all required for the FHA Simple Refinance option. There must be an appraisal of the property. Mortgages that were previously insured by the FHA must be re-insured.

203(k) Refinance Option

The 203(k) mortgage will payoff the existing mortgages and add additional money for home improvements

Cash out refinance

The FHA cash out refinance allows borrowers to take out their home's equity in the form of cash.

Benefits of an FHA loan

Seller concessions: The home seller is permitted to pay up to 6% of the buyer's closing costs.

Easier Credit Requirements

Foreclosure waiting period – 3 years

Gift funds allowed

Higher debt to income limits

Low credit score requirement

Low down payment – 3.5%

Low interest rates

Non-occupant co-borrowers and co-signers allowed

Rotating question markFrequently Asked Questions (FAQs)

Q. Can you get an FHA loan on a mobile home?
A. Find out if you can get an FHA loan on a mobile home. Read this guide before applying for a loan.

Q. Can you have 2 FHA loans?
A. The short answer is yes. But, it's not that simple.

Q. Does FHA loan have PMI?
A. If you're looking for an FHA loan, you might be wondering if it comes with Private Mortgage Insurance (PMI). This web page will explain how PMI works with FHA loans.

Q. How do you get an FHA loan?
A. At the bottom of this page is a listing of FHA lenders to choose from.

Q. How long to close FHA loan after an appraisal.
A. The time it takes to close an FHA loan after appraisal varies depending on the lender, but it typically takes around two weeks. During this time, the lender will verify the information in the appraisal and make sure that everything is in order before funding the loan.

Q. How much are FHA loan closing costs?
A. There are a number of fees and costs that are associated with closing on an FHA loan. These can include the appraisal fee, credit report fee, underwriter fee, and more. On average, these costs will amount to around 2-3% of the total loan amount. However, it is important to remember that these costs can vary depending on the lender and the location.

Q. How much FHA loan do I qualify for?
A. The amount of an FHA loan that you qualify for depends on your credit score, debt-to-income ratio, and other factors. Speak to an FHA loan officer at one of the companies below.

Q. How often are FHA loans denied in underwriting?
A. According to the Mortgage Bankers Association, about 2% of all FHA loans were denied in underwriting in 2016. This is because FHA loans are considered to be “riskier” than other types of mortgages, so the approval process is more rigorous. However, with a good credit score and a solid income history, most borrowers should be approved for an FHA loan.

Q. How to get FHA loan pre-approval?
A. There are a few simple steps to getting pre-approved for an FHA loan. First, you'll need to find a lender that offers FHA loans. Next, you'll need to complete a loan application. The lender will then review your application and determine if you're eligible for an FHA loan. If you are, the lender will issue a pre-approval letter indicating that you're approved for an FHA loan.

Q. How to get a FHA loan with bad credit?
A. There are a few things you can do to improve your chances of getting a FHA loan with bad credit. First, make sure you have a steady income and that you can prove it. Next, try to build up your credit score by paying your bills on time and keeping your debt levels low. Finally, be prepared to provide detailed information about your financial history and current situation.

Q. Is a FHA loan a conventional loan?
A FHA loan is not a conventional loan. A FHA loan is a government-insured loan that is backed by the Federal Housing Administration. A conventional loan is a privately-issued loan that is not backed by the government.

Q. Is a FHA loan bad?
A. There is no simple answer to this question. FHA loans can be good or bad, depending on your specific situation. Generally speaking, FHA loans are a good option for people who may not qualify for a conventional loan, or who want to put down a smaller down payment. However, FHA loans can be more expensive than conventional loans, and they may have stricter eligibility requirements.

Q. Is a FHA loan better than conventional?
A. There is no definitive answer to this question as it depends on individual circumstances. Some people may find that a FHA loan is better for them, while others may prefer a conventional loan. It is important to consult with a qualified mortgage lender to see which option would be best for you.

Q. Is a FHA loan good?
A. There is no one-size-fits-all answer to this question, as the best type of loan for you will depend on your individual circumstances. However, FHA loans can be a good option for some borrowers, as they offer low down payments and flexible credit requirements.

Q. What are the FHA loan qualifications?
A. The FHA loan qualifications are:

-You must be a legal resident of the United States.

-You must have a valid Social Security number.

-You must be of legal age to sign a contract.

-You must have a steady job or other source of income.

-Your total debt cannot exceed 43% of your monthly income.

-You must have a good credit score.

Q. What does FHA loan mean?
A. FHA stands for Federal Housing Administration, and FHA loans are mortgages that are insured by the FHA. This means that if you default on your loan, the FHA will reimburse the lender for any losses they suffer. FHA loans are a good option for people who may not be able to qualify for a conventional mortgage, because they have more relaxed eligibility requirements.

Q. What does FHA loan stand for?
A. FHA stands for Federal Housing Administration, which is a government agency that offers mortgage insurance on loans made by FHA-approved lenders. This insurance protects the lender in case of default, and allows them to offer borrowers lower down payments and interest rates.

Q. What are the FHA loan requirements?
A. The FHA loan requirements are set by the Federal Housing Administration, which is part of the Department of Housing and Urban Development. To qualify for an FHA loan, you must have a credit score of at least 580 and make a down payment of at least 3.5 percent.

Q. What is a FHA loan?
A. FHA loans are mortgages that are insured by the FHA. FHA loans are available to all types of borrowers, including first-time buyers and people with credit scores as low as 580.

Q. What is a FHA home loan?
A. A FHA home loan is a mortgage that is insured by the Federal Housing Administration. This means that if the borrower defaults on the loan, the FHA will pay the lender the money that is owed. This makes FHA home loans a safer option for lenders, and it also makes it easier for borrowers to qualify for a loan.

Q. What is the FHA loan interest rate?
A. The FHA interest rate varies depending on the borrower's credit score and other factors. Generally, borrowers with a credit score of 580 or higher will receive a lower interest rate than those with a lower credit score. See below.

Q. What is the FHA loan limit?
A. The FHA loan limit is the maximum amount of money that you can borrow to finance a home purchase. The loan limit is set by the Federal Housing Administration (FHA), which is a branch of the U.S. Department of Housing and Urban Development (HUD).

Q. Where can I get a FHA loan?
A. An FHA loan may be obtained in a few different locations.You can go to a bank, or you can go to a lending company that specializes in FHA loans. Whichever route you choose, make sure you are fully informed about the terms of the loan before you sign anything.

Q. Who can qualify for a FHA loan?
A. The Federal Housing Administration (FHA) is a government agency that offers mortgage insurance on loans made by FHA-approved lenders. This insurance protects the lender in the event that the borrower defaults on the loan.


To qualify for an FHA loan, you must meet certain requirements, including a minimum credit score and down payment amount. You may also be required to pay mortgage insurance premiums. The FHA loan program is with out question the best loan program for cash strapped home buyers and credit challenged buyers.