FHA loans are one of the most popular options for first-time home buyers because they accept lower credit scores and smaller down payments than most conventional loans. But FHA loans come with requirements and costs that are important to understand before you apply.
Ready to see what FHA rates you qualify for? Compare FHA lenders on LendingTree — one form, multiple offers.
What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of HUD (the U.S. Department of Housing and Urban Development). The FHA does not lend money directly — it insures lenders against losses if a borrower defaults. This guarantee is what allows FHA lenders to accept borrowers with lower credit scores and down payments.
FHA Credit Score Requirements
The FHA sets two credit score tiers:
- 580 or higher: Eligible for the minimum 3.5% down payment
- 500–579: Eligible for FHA with a 10% minimum down payment
- Below 500: Not eligible for FHA financing
Important caveat: lenders are allowed to impose stricter requirements than the FHA minimum. Many FHA lenders require a 620 score even though the FHA allows 580. If you have a score between 580 and 619, you may need to shop specifically for lenders that work with lower-credit borrowers.
New American Funding is known for working with buyers in the lower credit score range. See our lender comparison: Best Mortgage Lenders for First-Time Buyers 2026.
FHA Down Payment Requirements
With a 580+ credit score, the minimum down payment is 3.5% of the purchase price. On a $250,000 home, that is $8,750.
With a 500–579 credit score, the minimum down payment is 10%. On a $250,000 home, that is $25,000.
Down payment funds can come from personal savings, gift funds from family members, or down payment assistance programs. The FHA allows 100% of your down payment to come from a family gift — you do not need any of your own money in the deal as long as you can document the gift properly.
For help finding down payment assistance programs in your state, see: Down Payment Assistance Programs by State.
FHA Debt-to-Income Ratio Requirements
Lenders use two DTI ratios to evaluate FHA applicants:
- Front-end DTI (housing ratio): Your proposed mortgage payment (principal, interest, taxes, insurance) should not exceed 31% of your gross monthly income
- Back-end DTI (total debt ratio): All monthly debt payments combined should not exceed 43% of gross monthly income
FHA automated underwriting systems sometimes approve borrowers with back-end DTIs up to 57% when other factors are strong — like a large down payment, significant cash reserves, or a high credit score.
FHA Loan Limits for 2025
The FHA sets maximum loan amounts by county, adjusted annually. For 2025:
- Low-cost areas (floor): $498,257 for a single-family home
- High-cost areas (ceiling): $1,149,825 for a single-family home in the most expensive markets
Special limits apply in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. You can look up limits for any county at the HUD website or ask your lender.
FHA Mortgage Insurance Premiums (MIP)
FHA mortgage insurance is mandatory for all FHA loans. There are two components:
Upfront MIP (UFMIP)
1.75% of the base loan amount, charged at closing. This is almost always financed into the loan rather than paid in cash. On a $250,000 loan, UFMIP adds $4,375 to your loan balance.
Annual MIP
For most 30-year FHA loans with less than 10% down, the annual MIP is 0.55% of the outstanding loan balance per year (as of 2025 — the FHA adjusts these rates periodically). It is divided into 12 monthly payments added to your mortgage payment.
On a $250,000 loan: 0.55% ÷ 12 = about $114 per month added to your payment.
How Long Does FHA MIP Last?
- Down payment less than 10%: MIP for the life of the loan — it does not automatically cancel
- Down payment 10% or more: MIP cancels after 11 years
The only way to remove FHA MIP on a loan with less than 10% down is to refinance into a conventional loan once you have 20% equity. For buyers planning to stay in the home long-term, the lifetime MIP can add up to a significant cost. Run the numbers against PMI on a conventional loan if your credit score is 680 or higher.
FHA Employment and Income Requirements
- Employment history: Two years of continuous employment history preferred. Job gaps are not automatically disqualifying but require explanation.
- Self-employed: Two years of tax returns showing stable or increasing income
- Income verification: W-2s, pay stubs, and bank statements
FHA Property Requirements
FHA loans can only be used for primary residences — not investment properties or vacation homes. The property must also meet FHA minimum property standards, which an FHA-approved appraiser verifies.
Common issues that can cause FHA appraisal problems:
- Peeling paint (lead paint concern in pre-1978 homes)
- Missing handrails, broken windows, or holes in walls
- Roof with less than two years of remaining life
- Inoperable utilities at time of appraisal
- Safety hazards like exposed wiring
The seller must either fix the issues or negotiate a price reduction to cover repairs. In as-is sales, FHA financing can be challenging if the property has deferred maintenance.
Lenders That Work with FHA Borrowers
| Lender | Est. Rate Range | Min Credit Score | Min Down Payment | Best For |
|---|---|---|---|---|
| LendingTree | Varies by lender | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Comparing multiple offers at once |
| Rocket Mortgage | Competitive market rates | 580 (FHA) / 620 (conv.) | 3.5% (FHA) / 1% (ONE+ program) | Fast digital approval process |
| Better.com | Competitive market rates | 620 | 3% | Low-fee online experience |
| New American Funding | Competitive market rates | 500 (FHA) / 620 (conv.) | 3.5% (FHA) / 3% (conv.) | Buyers with lower credit scores |
Compare FHA lenders on LendingTree to find options that match your credit profile.
FHA vs. Conventional: Is FHA Right for You?
FHA makes sense when your credit score is below 680 or when you have limited down payment savings. For buyers with stronger credit (680+) who can put down at least 5–10%, a conventional loan often produces lower lifetime costs because PMI can be removed once you reach 20% equity.
Read the full comparison: FHA vs. Conventional Loan for First-Time Buyers.
Bottom Line
FHA loans open homeownership to buyers who would not qualify for conventional financing. The minimum credit score requirement (580 for 3.5% down) and flexible DTI limits make FHA the right starting point for many first-time buyers. The tradeoff is mortgage insurance that lasts the life of the loan, which adds to your monthly payment and total borrowing cost.
If you are exploring FHA options, compare FHA lenders on LendingTree to find the lender with the best rate and lowest fees for your situation.