What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. Because the government backs the loan, lenders take on less risk and can offer more flexible terms. FHA loans are popular with first-time homebuyers who have limited savings or a credit score below 740.
The main advantages of FHA loans are the low minimum credit score (580 for a 3.5% down payment) and the lower down payment compared to conventional loans. The main disadvantage is the mortgage insurance premium (MIP), which you pay for the life of the loan in most cases.
FHA Loan Requirements in 2026
Credit Score
The minimum credit score to qualify for an FHA loan depends on your down payment:
- 580 or higher: Minimum 3.5% down payment
- 500 to 579: Minimum 10% down payment
- Below 500: Not eligible for an FHA loan
Individual lenders may require higher scores. Many FHA lenders set their own minimum at 620 even though the FHA allows 580. Shop multiple lenders to find one willing to work with your score.
Down Payment
The minimum down payment for an FHA loan is 3.5% of the purchase price (for borrowers with a credit score of 580 or higher). On a $300,000 home, that is $10,500 down.
The down payment can come from your own savings, a gift from a family member, or a down payment assistance program. It cannot come from a personal loan.
Debt-to-Income Ratio (DTI)
Your DTI ratio measures your monthly debt payments against your gross monthly income. FHA guidelines allow:
- Front-end DTI: Up to 31% (housing costs only)
- Back-end DTI: Up to 43% (all debts combined)
With compensating factors — like a high credit score or large cash reserves — some lenders will approve DTIs up to 50%.
Employment and Income
FHA lenders want to see at least two years of steady employment history. You do not need to have had the same employer for two years. What matters is consistent employment in the same field or industry.
Self-employed borrowers need two years of tax returns showing stable or growing income.
Property Requirements
The home must meet FHA minimum property standards. An FHA appraiser will check that the property:
- Is structurally sound with a solid foundation and roof
- Has working electrical, plumbing, and heating systems
- Has no health or safety hazards (like lead paint on pre-1978 homes)
- Will be your primary residence — FHA loans are not for investment properties
FHA Loan Limits in 2026
FHA loan limits vary by county. In 2026, the standard limits are:
- Low-cost areas: $498,257 for a single-family home
- High-cost areas: Up to $1,149,825 for a single-family home
Check the FHA loan limits for your specific county before shopping for a home.
FHA Mortgage Insurance Premiums (MIP)
FHA loans require two types of mortgage insurance:
- Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing (or rolled into the loan)
- Annual MIP: 0.55% to 1.05% of the loan balance per year, paid monthly
For most borrowers, annual MIP applies for the life of the loan if your down payment is less than 10%. If you put 10% or more down, MIP drops off after 11 years.
This is the biggest drawback of FHA loans. Once you reach 20% equity, you cannot cancel FHA MIP the way you can cancel conventional PMI. Your option is to refinance into a conventional loan.
FHA Loan vs. Conventional Loan
Here is when each loan type makes more sense:
- FHA: Credit score below 700, less than 20% down, or a higher DTI ratio. The lower qualification bar is the main appeal.
- Conventional: Credit score above 720, at least 5% to 10% down, and the ability to cancel PMI once you reach 20% equity. Lower total cost over time for borrowers who qualify.
Run the numbers for both loan types before choosing. A mortgage broker can help you compare total costs including insurance.
How to Apply for an FHA Loan
- Check your credit score. Pull your free credit reports at AnnualCreditReport.com and dispute any errors.
- Calculate your DTI. Add up your monthly debt payments and divide by your gross monthly income.
- Save your down payment. You need at least 3.5% plus closing costs (typically 2% to 5% of the loan amount).
- Get pre-approved. Apply with two or three FHA-approved lenders and compare loan estimates.
- Find an FHA-approved home. Your real estate agent can help you filter for properties likely to pass the FHA appraisal.
Bottom Line
FHA loans are a strong option for first-time buyers with lower credit scores or limited savings. The 3.5% down payment and flexible credit requirements open the door to homeownership for people who cannot qualify for conventional loans.
The tradeoff is mortgage insurance for the life of the loan. Plan to refinance into a conventional loan once you reach 20% equity to eliminate that cost.