An FHA loan allows lower credit scores and down payments as low as 3.5 percent, but requires mortgage insurance.
Benefits
- Down payment as low as 3.5% with a 580 credit score.
- Accepts scores down to 500 with 10% down.
- Gift money allowed for the down payment.
- Easier to qualify than conventional loans.
- Assumable.
Costs
Upfront mortgage insurance of 1.75% and annual premiums of about 0.15% to 0.75%.
Limits
Property loan limits vary by county.
Who it suits
First-time and lower credit buyers.
Lower down payment and credit requirements
FHA loans require only 3.5% down with a credit score of 580 or higher (10% down for 500 to 579). This makes homeownership possible for buyers with limited savings or past credit problems.
Gift funds
The down payment can come from gifts from family members, employers or approved assistance programs.
Mortgage insurance
FHA loans carry mortgage insurance premiums: 1.75% upfront and an annual premium of 0.15% to 0.75%. With less than 10% down, the annual premium lasts for the life of the loan, so many borrowers refinance into a conventional loan after reaching 20% equity.
Loan limits
For 2024, the FHA floor limit in low cost areas was 498,257 dollars for a one unit home, and the ceiling in high cost areas was 1,149,825 dollars. Limits vary by county.
Property rules
The home must be your primary residence and meet FHA minimum property standards, with an appraisal by an FHA approved appraiser.
Assumable
FHA loans can be assumed by a qualified buyer, which can help when rates rise.
Flexible debt ratios
FHA allows higher debt to income ratios, often up to 43% and sometimes 50% or more with compensating factors.
Streamline refinance
FHA streamline refinance reduces the paperwork if you already have an FHA loan.
Multi unit
You can buy a property of up to four units if you live in one.
Programs
203(k) loans allow financing of home purchase and renovation together.
Who it suits
First time buyers, those with modest credit scores and limited savings.
Compare
Get quotes from several lenders, as rates and fees vary.
FHA loan limits and costs
FHA loans are insured by the Federal Housing Administration, which lets lenders approve borrowers with lower credit scores. A score of 580 or higher qualifies for the 3.5 percent minimum down payment, while scores from 500 to 579 generally require 10 percent down. Borrowers pay an upfront mortgage insurance premium of 1.75 percent of the loan amount and an annual premium that is commonly 0.55 percent for standard loans, paid monthly. For loans with less than 10 percent down, annual insurance usually lasts for the life of the loan, unless the borrower refinances into a conventional loan.
FHA versus conventional loans
Conventional loans allow private mortgage insurance to be cancelled once equity reaches 20 percent, which can make them cheaper for borrowers with scores above about 700. FHA loans are often cheaper for scores in the 580 to 660 range. The home must be the borrower’s primary residence and must meet FHA appraisal standards for safety and soundness. Sellers may contribute up to 6 percent of the price toward closing costs.
Based on data from the US Department of Housing and Urban Development and the Federal Housing Administration
