FHA Loan

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a division of HUD. The FHA does not lend money — it insures the loan, reimbursing approved lenders if borrowers default. This insurance allows lenders to offer more flexible terms. Key eligibility requirements: (1) Credit score: 580+ for 3.5% down; 500–579 for 10% down; below 500 ineligible; (2) Down payment: minimum 3.5% of purchase price (620 score threshold applies at many lenders, who impose overlays above FHA minimums); (3) DTI ratio: 43% back-end DTI standard; up to 50% with compensating factors; (4) Primary residence only — FHA loans cannot be used for investment properties; (5) Property standards: the property must meet FHA Minimum Property Standards (MPS); appraisers flag conditions that need repair before funding; (6) Loan limits: FHA loan limits vary by county (set annually by HUD). Full eligibility at HUD.gov FHA loan information.

FHA requires two types of Mortgage Insurance Premium (MIP): (1) Upfront MIP (UFMIP): 1.75% of the base loan amount, paid at closing or financed into the loan. Example: $300,000 loan × 1.75% = $5,250 UFMIP; (2) Annual MIP: charged monthly; rate depends on loan term, LTV, and loan amount. For a 30-year loan over $150,000 with LTV above 95%: 0.55% annually (as of 2023 reduction). Monthly MIP example: $300,000 × 0.55% ÷ 12 = $137.50/month. Key rule: for loans with LTV above 90% at origination (down payment below 10%), MIP lasts for the life of the loan — it does not cancel at 78% LTV like conventional PMI. To remove MIP, you must refinance into a conventional loan once you have 20% equity. For loans with 10%+ down, MIP cancels after 11 years. Current MIP tables at HUD FHA MIP schedule.

FHA loan limits are set annually by HUD and vary by county based on median home prices. For 2027 (projected based on 2024 limits with appreciation): Standard (low-cost) areas: approximately $498,000 for a single-family home (floor — 65% of conforming loan limit); High-cost areas (major metros, Hawaii, Alaska): approximately $1,149,825 for a single-family home (ceiling — 150% of conforming loan limit); Special exception areas (Guam, US Virgin Islands, certain rural areas): higher limits apply. FHA limits also increase for 2–4 unit properties. Always verify current limits for your specific county at the HUD FHA mortgage limits lookup tool. If your loan amount exceeds the FHA limit for your county, you'll need a conventional jumbo loan instead.

Key differences: (1) Down payment: FHA 3.5% (580 score) vs conventional 3% (Fannie/Freddie HomeReady/Home Possible for qualifying buyers) or 5% standard; (2) Credit score: FHA accepts 580+ (3.5% down) vs conventional typically 620+ minimum; (3) Mortgage insurance: FHA MIP lasts life of loan (if <10% down) vs PMI cancels at 78–80% LTV on conventional; (4) Loan limits: FHA limits by county vs conforming loan limit ($766,550+ depending on area) for conventional; (5) Property condition: FHA has stricter minimum property standards; conventional is more flexible; (6) DTI: FHA allows up to 50% back-end DTI with compensating factors; conventional standard is 43–45%. For borrowers with strong credit (740+) and 20% down, conventional is almost always cheaper (no PMI, lower rate). For lower credit or minimal down payment, FHA is often the better path. Use the mortgage calculator to compare total costs.

Yes — there is no limit on how many times you can use an FHA loan over your lifetime, with one critical restriction: you can only have one FHA loan at a time (with limited exceptions). You must use the property as your primary residence. Exceptions to the one-FHA-loan rule that allow a second active FHA loan: (1) job relocation to an area more than 100 miles from your current home; (2) increase in family size that makes the current home insufficient; (3) vacating a jointly owned property due to divorce. When you sell your FHA home and pay off the loan, you are free to obtain a new FHA loan on your next primary residence. FHA loans can also be assumed — a buyer can take over your FHA loan at your existing rate (subject to lender credit approval). The HUD FHA handbook (4000.1) covers all eligibility and occupancy requirements.

The FHA 203(k) loan allows borrowers to finance the purchase (or refinance) of a home AND the cost of qualifying repairs and renovations in a single mortgage. It is the primary renovation loan option backed by the FHA. Two types: (1) Standard 203(k): for major structural repairs (roofs, foundations, room additions); minimum $5,000 in repairs; requires a HUD-approved consultant; no maximum repair cost (subject to FHA loan limits); (2) Limited 203(k) (formerly Streamlined): for non-structural improvements (kitchens, baths, painting, appliances); maximum $35,000 in repairs; no HUD consultant required. The 203(k) is especially useful for buying a foreclosure or fixer-upper that would not qualify for standard FHA financing due to condition issues. A competing option for conventional loans is the Fannie Mae HomeStyle Renovation loan. See the HUD 203(k) rehabilitation program page for current program details.