What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD). Because the government insures these loans, lenders can offer them to borrowers who might not qualify for conventional financing — including those with lower credit scores and smaller down payments.
Key FHA Loan Benefits
- Down payment as low as 3.5% — With a 580+ credit score
- Credit scores as low as 500 — With 10% down payment
- Higher debt-to-income ratios allowed — Up to 57% in some cases
- Gift funds permitted — Down payment can come from family
- Assumable loans — A buyer can take over your FHA loan when you sell
- Available in all 50 states
FHA Loan Requirements in 2025
Credit Score
- 580+: Qualifies for 3.5% minimum down payment
- 500–579: Requires 10% minimum down payment
- Below 500: Does not qualify
Debt-to-Income Ratio
The FHA generally allows a front-end DTI (housing costs) of 31% and a back-end DTI (all debts) of 43%, though exceptions up to 57% are possible with strong compensating factors.
Primary Residence Requirement
FHA loans are for primary residences only — you must live in the home you purchase.
Property Conditions
The property must meet FHA minimum property standards and pass an FHA appraisal. Fixer-uppers may require a 203(k) rehabilitation loan.
FHA Mortgage Insurance Premium (MIP)
FHA loans require mortgage insurance regardless of your down payment. This includes:
- Upfront MIP: 1.75% of the loan amount (can be rolled into the loan)
- Annual MIP: 0.55–1.05% per year, depending on loan size and term, divided into monthly payments
Unlike PMI on conventional loans, FHA MIP typically stays for the life of the loan (unless you put 10%+ down, in which case it drops off after 11 years). This is an important consideration when comparing FHA vs. conventional options.
FHA vs. Conventional: When to Choose Each
Choose FHA when: your credit score is below 700, you have limited savings for a down payment, your DTI is higher than 43%, or you've had recent credit challenges.
Choose Conventional when: your credit score is 720+, you can put 20% down (to avoid PMI), you want flexibility on property types, or you want to eliminate mortgage insurance sooner.
FHA Loan Limits for 2025
FHA loan limits vary by county. In low-cost areas, the limit is $498,257 for a single-family home. In high-cost areas, limits go up to $1,149,825. True Equity Line can help you determine the limit for your specific area.