An FHA loan is a mortgage insured by the Federal Housing Administration, aimed primarily at first-time homebuyers, people with lower credit scores, or those with limited savings for a down payment. These loans are issued by FHA-approved lenders, but the FHA insures the loan to reduce the lender’s risk.
| Feature | Details |
|---|---|
| Down Payment | As low as 3.5% (if credit score ≥ 580) |
| Credit Score | Minimum 500 (with 10% down); 580+ for 3.5% down |
| Debt-to-Income (DTI) Ratio | Typically up to 43%, can go up to 50% in some cases |
| Loan Limits | Based on county; varies from ~$498,257 (low-cost) to ~$1,149,825 (high-cost areas) in 2025 |
| Mortgage Insurance | Required: Upfront MIP (1.75%) + Annual MIP (varies) |
| Occupancy Requirement | Must be primary residence |
| Eligible Property Types | Single-family homes, condos (FHA-approved), some multi-unit properties |
| Advantage | Details |
|---|---|
| Low Down Payment | As low as 3.5%, good for first-time buyers |
| Flexible Credit Requirements | You can qualify with a score as low as 500 |
| Higher DTI Allowed | FHA allows higher debt loads than conventional |
| Gift Funds Allowed | Down payment can be 100% gifted from relatives/friends |
| Assumable Loan | Can be transferred to a qualified buyer if rates are lower |
| Refinance Options | FHA Streamline refinance available for easy refinancing |
| Disadvantage | Details |
|---|---|
| Mortgage Insurance Premiums (MIP) | Both upfront and annual premiums required (can’t cancel unless you refinance to conventional) |
| Loan Limits | May not be enough in high-cost areas unless you qualify for a high-balance FHA |
| Strict Appraisal Requirements | Property must meet HUD standards — repairs may be required |
| Primary Residence Only | Cannot be used for second homes or investment properties |
| Not Accepted by All Sellers | Some sellers may prefer buyers with conventional loans (less regulation/appraisal delays) |
| Feature | FHA | Conventional |
|---|---|---|
| Credit Score | 500–579 (10% down), 580+ (3.5% down) | Usually 620+ |
| Down Payment | 3.5% (min) | 3% (min) |
| PMI Cancellation | Never (unless refi) | Can be canceled at 20% equity |
| MIP/PMI | Upfront + annual MIP | PMI (no upfront), cancels at 80% |
| DTI Ratio | Up to 50% allowed | Usually ≤ 43% |
| Loan Limits | Lower | Higher in some areas |
| Flexibility | Better for limited credit or savings | More flexible if strong financials |
✅ You have a low-to-moderate income
✅ You’re a first-time homebuyer
✅ You have limited savings
✅ You have a lower credit score (500–650)
✅ You need gift funds to cover down payment
✅ You want to buy a home but don’t qualify for a conventional mortgage
