More home buyers are turning to FHA mortgages, which have more lenient eligibility requirements than conventional loans. Real estate agents who learn the ins and outs of this type of financing can help ensure a smooth transaction.
Federal Housing Administration loans are designed to help Americans who are struggling to afford a home. These government-backed mortgages have more lenient requirements for borrowers, like lower credit score and down payment thresholds for approval, which could make a big difference.
FHA government-backed loans are different from conventional mortgages, which are issued by private lenders and more commonly used by consumers. But conventional mortgages typically have stricter eligibility requirements. One of the main draws to FHA loans is its more lenient requirements for buyers who have less money saved up for their home purchase. FHA borrowers may be eligible for a 3.5% down payment if they have a credit score of 580 or higher; borrowers with a credit score between 500 and 579 may need a 10% down payment.
How to Qualify for an FHA Loan
What Are FHA Loan Limits?
This is the maximum loan amount that FHA lenders will approve for a home purchase. FHA loan limits can vary geographically and are updated annually to reflect any changes in the real estate marketplace. In 2024, the FHA loan limit for most parts of the country was $498,257 for a single-family home.
HUD requires that each property insured with an FHA mortgage be evaluated by an appraiser for safety, security and structural soundness. The appraiser will check whether the electrical system complies with building codes; the water supply is sanitary; utilities are in good condition (sewer, gas, etc.); proper ventilation exists in the attic and basement; and pests are present. FHA also has requirements for the home’s exterior, including direct street access, proper water drainage and a structurally sound roof. HUD offers a detailed list of its minimum property requirements at HUD.gov.
One main difference with FHA loans compared to other financing is that FHA requires the property to meet minimum standards set by the Department of Housing and Urban Development. These standards help ensure buyers avoid purchasing a home with safety hazards and reduces lenders’ risks.
The lender will then determine from the appraiser’s report whether repairs need to be addressed prior to finalizing the loan.
Knowing how to choose a home that fits an FHA loan involves having an educated realtor.
Here are some common questions that buyers have regarding FHA.
1. What is an FHA loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA). It is designed to help borrowers with lower credit scores and smaller down payments qualify for homeownership.
2. What is the minimum credit score required for an FHA loan?
580 or higher: Eligible for a 3.5% down payment.
500–579: Requires a 10% down payment.
Some lenders may have stricter requirements beyond FHA guidelines.
3. How much is the required down payment for an FHA loan?
3.5% if your credit score is 580 or higher.
10% if your credit score is between 500–579.
4. What are the FHA loan limits?
FHA loan limits vary by county and housing market. In 2024, the limits range from $498,257 in lower-cost areas to $1,149,825 in high-cost areas for a single-family home. Check HUD’s website or with your lender for your area’s specific limits.
5. Do FHA loans require mortgage insurance?
Yes, FHA loans require Mortgage Insurance Premiums (MIP):
Upfront MIP (UFMIP): 1.75% of the loan amount (can be rolled into the loan).
Annual MIP: 0.55% (or less) of the loan balance, paid monthly.
6. Can I use an FHA loan to buy an investment property?
No, FHA loans are for primary residences only. However, you can purchase a multi-unit property (up to 4 units) if you live in one of the units.
7. Can I use gift funds for my FHA loan down payment?
Yes, you can use 100% gift funds from an eligible donor (family, employer, charity, etc.) for your down payment and closing costs. The donor must provide a gift letterstating that repayment is not required.
8. Are there income limits for FHA loans?
No, FHA loans do not have income limits, but you must show that your income is stable and sufficient to cover mortgage payments.
9. Can I refinance an FHA loan?
Yes, you can refinance using:
FHA Streamline Refinance (if you already have an FHA loan) – Requires minimal documentation and no appraisal.
FHA Cash-Out Refinance – Allows borrowing against home equity (credit and appraisal required).
10. How do I apply for an FHA loan?
You can apply through an FHA-approved lender, such as banks, credit unions, or mortgage companies. The lender will evaluate your credit, income, and debt-to-income ratio to determine eligibility.
11. You Can’t Have Two FHA Loans at the Same Time (With Some Exceptions)
FHA loans are meant for primary residences, so you generally must pay off or sell your first FHA-financed home before getting another one. However, there are exceptions where you can have two FHA loans at once, including:
Relocation for a job where the new home is beyond a reasonable commuting distance.
Significant increase in family size, making the current home too small.
Divorce, where one spouse stays in the original home, and the other needs a new FHA loan.
Non-occupying co-borrower scenario, where you co-signed for someone else’s FHA loan but now need your own.
12. You Can Use an FHA Loan Again After Selling
Once you sell or refinance out of your first FHA loan, you’re eligible for another one, assuming you meet the standard requirements (credit, income, debt-to-income ratio, etc.).
13. FHA Loans Can Be Used for Different Property Types
You can use an FHA loan multiple times for different single-family homes, condos, or multi-unit properties (up to 4 units)—as long as you live in the property as your primary residence.
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