FHA loans: a flexible way to buy your first home (or your next one)

What is an FHA loan?

An FHA loan is a mortgage made by a private lender and insured by the FHA. FHA doesn't lend the money. It protects the lender if the borrower stops paying.

Because the government takes on that risk, HUD sets the rules. They're all in one book: the Single Family Housing Policy Handbook 4000.1. When I work on an FHA loan, that handbook is the rulebook.

Borrowers pay for this insurance through MIP (mortgage insurance premiums). That's the trade. You get more flexibility on credit, debt and down payment. In return, the mortgage insurance often lasts longer than conventional PMI.

What are the 2026 FHA loan limits?

FHA loan limits are set by county. For case numbers assigned on or after January 1, 2026, the one-unit limit starts at $541,287 in lower-cost areas. It goes up to $1,249,125 in high-cost areas (HUD Mortgagee Letter 2025-23).

Most counties fall somewhere in between, so I always look up the exact county before we write an offer. Limits for two- to four-unit homes are higher.

How does an FHA loan get approved?

1. FHA case number. Once you have a home under contract, the lender orders an FHA case number. The date it's assigned decides which HUD rules apply to your loan, including the MIP rules.
2. TOTAL Mortgage Scorecard. FHA loans run through HUD's TOTAL Mortgage Scorecard, a computer review. An “Accept” means the loan can move forward under the handbook's automated rules. A “Refer” means a person must review it by hand (manual underwriting). That has stricter debt limits and needs documented strengths in your file, called compensating factors.
3. FHA appraisal. An FHA appraiser estimates the home's value. They also check it against HUD's minimum property requirements, which focus on safety, security and soundness. Things like peeling paint on older homes, missing handrails or a worn-out roof can become required repairs.
4. Underwriting. The underwriter reviews your credit, income, savings and the appraisal against Handbook 4000.1.
5. Closing. In Georgia, a closing attorney conducts your closing, and the attorney's firm handles title and the entire closing.

Who is an FHA loan best for?

• Buyers whose credit is still recovering. FHA's credit standards are more forgiving. The wait after a bankruptcy or foreclosure is generally shorter than with conventional.
• Buyers with higher debt-to-income ratios. An Accept from TOTAL can support debt levels that would be harder to get approved on a conventional loan.
• Buyers with modest savings. FHA has flexible down payment rules. Documented gift money from approved sources can help.
• Buyers of 2- to 4-unit homes who will live in one unit. FHA allows multi-unit homes when the owner lives there.
• Buyers of homes that need work. This is done through the 203(k) program.

How do you qualify for an FHA loan?

What credit score do you need for an FHA loan?

HUD's minimum score depends on how much you put down. A credit score of 580 or higher qualifies for FHA's maximum financing. Scores from 500 to 579 can qualify with a larger required investment. Below 500, a borrower can't get an FHA-insured loan. Lenders may set higher minimums than HUD.

What's changing with FHA credit scores in 2027?

HUD Mortgagee Letter 2026-11, issued October 8, 2026, lets lenders use FICO 10T and VantageScore 4.0 alongside Classic FICO. These newer scores can look at your credit trends over time. They can also look at other data, like rent and utility payments. This applies to case numbers assigned on or after January 1, 2027.

The minimum scores themselves don't change. Everyone on the loan must use the same type of score. And lenders still need a tri-merge credit report (your report from all three credit bureaus).

What I tell my clients: don't plan your purchase around a scoring change. It may help some people with little credit history or a strong rent record. But your Classic FICO score is what we can work with today.

What debt-to-income ratio do you need for FHA?

Your DTI (debt-to-income ratio) shows how much of your monthly income, before taxes, goes to debt payments. FHA looks at two versions. One is your house payment alone compared to your income. The other is all your debts compared to your income.

With an automated Accept, TOTAL decides if your ratios work based on your whole file. With manual underwriting, HUD sets specific limits. Those limits go higher only with documented compensating factors, like cash savings or a new payment close to what you pay now (minimal payment shock).

Does your credit history matter, not just your score?

Yes. FHA underwriters look at the pattern. They review late payments in the last twelve months, collections, judgments and disputed accounts.

A past bankruptcy or foreclosure doesn't automatically rule you out. HUD sets waiting periods. In some cases, it allows exceptions for documented extenuating circumstances (a one-time event outside your control). I check the dates on your credit report against the handbook before we ever talk about houses.

How does FHA mortgage insurance (MIP) work?

Every FHA loan has two kinds of mortgage insurance:

• Upfront MIP (UFMIP) of 1.75 percent of the base loan amount. It's usually added into the loan instead of paid in cash.
• Annual MIP, paid monthly as part of your mortgage payment. HUD lowered annual MIP rates for most new loans through Mortgagee Letter 2023-05, for loans endorsed on or after March 20, 2023.

How long does FHA mortgage insurance last?

Source: HUD Mortgagee Letter 2013-04. Loan-to-value means your loan amount compared to the home's value. In plain terms: if you put at least 10 percent down, annual MIP ends after 11 years. If not, it stays for the life of the loan.

You can't cancel FHA MIP early by asking, the way you can with conventional PMI. The usual way out is to refinance into a conventional loan once you have enough equity and credit.

What documents do I need for an FHA loan?

• Recent pay stubs and W-2s; tax returns when the system or your type of income calls for them
• Bank statements for every account you'll use to close, with large deposits explained
• A gift letter and paperwork from the giver, including proof of the transfer, if family is helping
• Bankruptcy discharge papers or foreclosure records, if they apply
• Explanations for recent late payments or negative accounts when the underwriter asks
• Photo ID and Social Security number verification

How much do I need for a down payment on an FHA loan?

FHA has flexible down payment requirements. The minimum you need to invest depends partly on your credit score, as described above.

The money can come from your own savings or documented gifts from approved givers, like family members. In many cases, state or local down payment assistance programs can help too. Every dollar has to be traceable. That isn't red tape for its own sake. HUD requires lenders to verify where the money came from.

The down payment calculator can help you compare options. I can also show you how a larger down payment changes how long you'll pay MIP.

What is an FHA 203(k) loan for a home that needs work?

The 203(k) program lets you roll the cost of repairs or upgrades into one FHA-insured loan. HUD offers two versions:

• Limited 203(k) for non-structural repairs and updates. Up to $75,000 in repair costs can be added into the mortgage.
• Standard 203(k) for major rehab, including structural work. Repairs must total at least $5,000. The home's value after the work must fall within the area's FHA limit. A HUD-approved consultant is involved.

Renovation loans take more coordination: contractor bids, a payment schedule for the work (called a draw schedule) and inspections. They can be a smart way into a neighborhood you couldn't otherwise afford. If you're thinking about building instead of renovating, see construction-to-permanent loans.

What are the benefits of an FHA loan?

• Credit flexibility. HUD publishes its minimum scores, and the automated scorecard weighs your whole file.
• More room on debt ratios with automated approvals.
• Mortgage insurance cost isn't driven by credit score the way conventional PMI is. That can make FHA cheaper if your scores are lower.
• Works for 1 to 4 units when you live in one of them.
• Renovation financing through 203(k).
• Streamline refinance options for people who already have an FHA loan, subject to HUD requirements.

What are the downsides of an FHA loan?

• MIP often lasts for the life of the loan, plus there's the upfront premium.
• Only for the home you live in. No second homes or rental properties.
• Property condition standards. Required repairs can complicate as-is sales or homes with put-off maintenance.
• Condo approval. FHA has its own condo approval process, separate from Fannie and Freddie.
• County loan limits are lower than conforming limits in many areas.

FHA vs. conventional vs. VA: which is better?

Compare costs with the mortgage payment calculator. If you already have an FHA loan, the refinance calculator can show when moving to conventional makes sense.

Common questions about fha loans

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