What Is an FHA Loan? Requirements and Who It’s Best For

You may qualify for an FHA loan with a score as low as 580 if you’re making the minimum 3.5% down payment, or 500 if you’re putting down 10% or more.

FHA loans work for people with imperfect credit. FHA loans may be the only choice for some borrowers who are repairing their credit or may have derogatory or delinquent accounts in their credit history. Major credit events, like bankruptcies and foreclosures, require a four- to seven-year wait time for conventional financing. However, you’re eligible for an FHA loan:

Along with the 3.5% down payment requirement, FHA loan guidelines don’t require you to come up with your own money to buy a home. Your down payment funds can be gifted from a relative, employer, nonprofit or labor union. You can even sell an asset like a car to come up with the money. However, be sure to document the sale with details of the ownership transfer, as well as the funds transfer.

Lenders divide your total debt by your pretax income to determine your debt-to-income (DTI) ratio. Historical data shows that the higher your ratio, the harder it is to make your monthly mortgage payment, which is why lenders prefer this ratio to be lower. Even though FHA guidelines set the maximum at 43%, you can qualify with a DTI ratio above 45% if you have a strong credit score and extra cash reserves.

Use our DTI calculator to calculate your debt-to-income ratio today.

Another perk of FHA loans is that there are no income limits. That’s good news if you’re low on down payment funds but earn more than the median income for your location, as many down payment assistance (DPA) programs are only open to people making less than the area median income (AMI). To qualify for an FHA loan, you’re not required to have been employed for a specific amount of time — but you will need to show pay stubs covering the last 30 days. You’ll also need documentation, such as W-2s, for any jobs held in the last two years. Be prepared to provide explanations for any large gaps in your employment.

You’ll need to live in a home purchased with an FHA loan as your primary residence for at least one year. Conventional loans, on the other hand, allow you to finance a vacation home or rental property.

A high DTI ratio or low credit score may trigger a requirement for mortgage reserves, which is rainy-day money you have on hand to cover a set number of monthly mortgage payments. You’ll also need cash reserves if you’re buying a multifamily home and plan to rent out the extra units.

HUD caps how much you can borrow when it sets FHA loan limits each year. The limits are a percentage of the conforming loan limits set annually by the Federal Housing Finance Agency.

The bottom line: You can’t borrow as much money with an FHA loan as you can with a conventional loan. You can find your local loan limits on the FHA mortgage limits website. Our table below breaks down the 2026 national FHA loan limits for low- and high-cost areas.

Tip: Choose a conforming loan for higher loan amounts

If FHA loan limits don’t give you enough money for your home purchase, check the conforming loan limits in your area. If a conforming loan can provide enough for your home purchase, you can start shopping for conventional loan lenders. In most parts of the country, the one-unit conforming conventional loan limit is $832,750, giving you $291,463 more than FHA loan limits allow to put toward a home purchase.

FHA-approved lenders will check the Credit Alert Interactive Verification Reporting System (CAIVRS) to determine whether you’ve defaulted on another government-backed loan. If you’re delinquent on student loans, Small Business Administration (SBA) loans or other government debt, your application may be denied.

The FHA requires two types of FHA mortgage insurance on every FHA loan:

With FHA loans, you have less flexibility because you usually can’t remove mortgage insurance without refinancing. However, FHA loans offer easier upfront qualification. Conventional loans, on the other hand, reward stronger financial profiles with lower and cancelable insurance costs. 

Here are the four most important differences between FHA mortgage insurance and the private mortgage insurance offered on conventional loans:

The Federal Housing Administration (FHA) is a government agency that was created to make it easier for Americans to become homeowners. It provides mortgage insurance to cover lenders’ losses on FHA loans, which in turn allows lenders to approve borrowers with lower credit scores and smaller down payments. If a homeowner defaults on their FHA loan and the lender has to foreclose on the home, the FHA pays off the loan balance. 

Most homebuyers choose a “standard” FHA loan to buy or refinance their home. Also called the 203(b) loan program, this type of FHA loan features the down payment and credit score requirements discussed above.

Who it’s good for: Low-credit-score borrowers who don’t have a lot saved for a down payment.

If you have at least a 580 credit score, you can replace your current FHA loan with a new one and borrow up to 97.75% of your home’s value. You can also roll your FHA closing costs into the total loan amount. This is commonly known as a “rate-and-term” refinance.

Who it’s good for: Homeowners who don’t have enough equity or a high enough credit score to qualify for a conventional refinance.

If you have an existing FHA loan, an FHA streamline refinance can help you lower your monthly payments or change your term. An added bonus: You can skip providing income documents and paying for a home appraisal, which makes the process easier than a regular FHA refinance.

Who it’s good for: Homeowners who have a current FHA loan and want to save money with a new FHA loan.

You may qualify to borrow more than you currently owe and pocket the difference in cash with an FHA cash-out refinance — even with a credit score as low as 500. But you can’t borrow more than 80% of your home’s value, and the cash-out option only applies if the home is your primary residence.

Who it’s good for: Homeowners who want to tap their home’s equity to pay off debt or meet other financial goals.

Buy or refinance a home and roll the renovation costs into the same mortgage with the 203(k) loan program. You can choose the limited program for smaller projects (under $35,000), while the standard program gives you more cash for larger ones.

Who it’s good for: Borrowers who want to buy or refinance a home and roll the cost of repairs into one loan.

The HECM loan, more commonly known as a “reverse mortgage,” gives borrowers ages 62 or older multiple ways to convert their home equity to cash or income. The big selling point is that, unlike a regular mortgage, there’s no monthly payment. The amount you can qualify to borrow is based on the youngest homeowner’s age.

Who it’s good for: Seniors who want to convert their equity to income, a credit line, a lump-sum payout or a combination of all three.

Called an EEM for short, an energy-efficient mortgage program lets you add the cost of energy-saving upgrades to the balance of a purchase or refinance loan. To find out how much you can add to your loan, reach out to your lender. They can access an FHA EEM calculator that will determine how much you can borrow.

Who it’s good for: Homebuyers or homeowners who want to add the cost of green upgrades to their home loan.

Two lesser-used loan programs are the graduated payment mortgage (GPM) and growing equity mortgage (GEM). The GPM loan starts off with negative amortization (meaning your balance will actually grow during the first few years) and has monthly payments that increase each year. If you’d like to pay off your mortgage earlier, monthly payments on a GEM loan increase on a set schedule to shrink your principal balance at a quicker pace.

Who it’s good for: Homebuyers who want the lowest payment early in their career or plan to pay off their loan faster as their income grows.