FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). FHA insurance protects lenders against borrower default, enabling more flexible qualification standards including lower credit score and down payment minimums.
What This Means
FHA Insurance Structure
FHA loans require two forms of mortgage insurance. Borrowers pay an upfront mortgage insurance premium (UFMIP) of of the base loan amount, which can be financed into the loan balance. An annual mortgage insurance premium (MIP) is also assessed monthly, with rates that vary based on loan term, loan-to-value ratio, and loan amount. For most 30-year FHA loans with a down payment under , the annual MIP remains for the life of the loan.
Qualification Requirements
FHA loans are available to borrowers with credit scores as low as , though a score of or higher qualifies for the minimum down payment. Scores between 500 and 579 require at least down. The maximum debt-to-income (DTI) ratio is generally , though FHA allows higher ratios with documented compensating factors. FHA loan limits are set by county and updated annually; the standard floor for 2025 is for a single-unit property.
Key Considerations
FHA loans serve as an important access point for first-time homebuyers, borrowers rebuilding credit, and those with limited savings. The property must serve as the borrower's primary residence, and the home must meet FHA minimum property standards as determined by an FHA-approved appraiser. While FHA loans offer lower barriers to entry, the lifetime MIP requirement on most loans means total borrowing costs can exceed those of conventional financing over time.