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For nearly 100 years, the Federal Housing Administration has helped families achieve the goal of homeownership. Some 50 million loans insured by the FHA have been issued by approved lenders tailored to stimulate homeownership, particularly for first-time home buyers and low-to-moderate-income households.
A much greater assortment of mortgage options is available to potential home buyers today than in 1934. Here’s how a government-backed FHA loan stacks up to the 2025 home loan alternatives.
Read more: How to buy a house in 13 steps
In this article:
An FHA home loan is a mortgage insured by the Federal Housing Administration. The FHA is a primarily self-funded division of the Department of Housing and Urban Development. It guarantees loans meeting particular requirements that are issued by participating lenders. Protecting lenders against loan losses allows the FHA to insure more loans, broadening its reach to households with lower incomes and less savings.
Read more: The different types of mortgage loans
An FHA loan can be used to buy a home or refinance a mortgage and has specific benefits and requirements, including:
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Less stringent credit qualifications than conventional loans.
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Loan limits that vary by county, capping the maximum lendable value of a property.
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Mortgage insurance premiums that are paid by the borrower but protect the lender from a loan default.
Specific loan requirements can vary by lender, but generally, FHA loans comply with the following conditions.
Dig deeper: FHA loan requirements explained
Long before 3% down payments were available on conventional mortgages, FHA loans were the original low-down-payment option. A FICO score of 580 or higher will qualify a borrower for a down payment of only 3.5%. A credit score as low as 500 will require 10% down.
Yahoo note: If you’re a public servant who qualifies for the Good Neighbor Next Door program, you can get an FHA loan with a down payment of only $100.
To qualify for an FHA loan, a borrower must have a FICO credit score of 500 or higher. When two or more borrowers apply for an FHA loan, the lowest individual score is considered.
A debt-to-income ratio is calculated by taking the total of existing monthly debt plus the estimated monthly mortgage payment divided by gross monthly income. FHA loans generally require a DTI of 43% or less, though exceptions can be made with higher credit scores and additional factors considered. (See table below.)
FHA grants loans up to a purchase-price maximum determined by county, with distinctions made for low-cost and high-cost areas. In 2025, the maximum single-family loan limit in a low-cost area is $524,225. For high-cost areas, the maximum loan is $1,209,750. Higher limits are designated for Alaska, Hawaii, Guam, and the Virgin Islands.
An FHA Mortgage Limits search tool allows you to search for maximum FHA loan values by county.
Read more: The latest FHA loan limits
To protect lenders from losses, the FHA charges up-front and ongoing mortgage insurance premiums. The up-front MIP can be paid at closing or financed as part of the loan. The annual MIP is built into the monthly mortgage payment.
Read more: Understanding FHA mortgage insurance
The ongoing mortgage insurance premium is for the life of the loan, except for a loan where the borrower made a down payment of 10% or more. In that case, the annual MIP can be canceled after 11 years.
Yahoo Finance tip: How to remove FHA mortgage insurance and lower your payments
Every loan comes with built-in fees, and FHA loans are no exception. Most of the people around the closing table, along with a large number of unseen third parties, all need to be paid. One of the most significant charges is the mortgage insurance premium mentioned above, but you’ll face many other fees.
Knowing what to expect will help lower the sticker shock.
Dig deeper: FHA loan closing costs — What they cover and how much you’ll pay
FHA-backed loans often have lower interest rates than conventional loans. Yet, the rate you qualify for depends on many factors. The additional fees tacked on FHA loans, primarily the mortgage insurance premium discussed above, can raise your fees-included annual percentage rate.
While FHA loans are a gateway to ownership for many financially challenged households, it’s still important to shop multiple lenders for the best combination of a low interest rate and fair fees.
Read more: The best FHA loan lenders
Some of the key differences between FHA loans and conventional HomeReady and Home Possible mortgages include:
Dig deeper: FHA vs. conventional loan — Which should you choose?
This is the mortgage program that powers the FHA homeownership dream. The 203(b) loan allows a prospective homebuyer to make as little as a 3.5% down payment. Local and national lenders offer the loan, which is backed by the U.S. Department of Housing and Urban Development. This FHA loan is typically offered with a fixed interest rate.
FHA loans also come in adjustable-rate versions. Your initial rate is locked in for a predetermined number of years and then changes annually. For example, an FHA 3-year ARM has a fixed interest rate for the first three years, then can rise by one percentage point each year, up to a maximum increase of five percentage points over the life of the loan.
Buying a condo with an FHA loan requires HUD approval of the property. That approval protects you, the lender, and, of course, HUD. It ensures that the condominium project abides by state and local laws and verifies financial standing, insurance coverage, and other legal and property suitability.
Dig deeper: How FHA-approved condos work and how to qualify
FHA Manufactured Home Loan (Title I and Title II)
FHA has been making loans on manufactured homes for over 55 years. The Title 1 program finances the home, and Title II enables the purchase of both the home and the land where the house is to be located.
Learn more: FHA loans for manufactured homes — How they work and how to qualify
The FHA Energy Efficient Mortgage program aims to lower utility bills. EEMs can be used to finance home improvements with a purchase or refinance loan. The money-saving upgrades are based on a professional home energy assessment and will cover the costs of the evaluation, labor, materials, and inspections.
Read more: How does an energy-efficient mortgage work?
FHA Rehabilitation Mortgage Standard 203(k)
If you own or are buying a home requiring major repairs, the FHA 203(k) program may be the funding solution you need. It funds significant remodeling, renovation, and structural upgrades.
The 203(k) rehab loan also comes in a scaled-down version for minor repairs and improvements. However, it’s not for just nickel-and-dime upgrades — the Limited 203(k) can fund up to $75,000 in enhancements.
Dig deeper: How to use an FHA 203(k) loan to renovate a home
Buying an existing home is a challenge these days, with scarce inventory and rising prices. Perhaps new construction is the answer. FHA’s construction-to-permanent loan wraps two loans into one to fund the building and long-term financing of a home seamlessly.
Learn more: How to use an FHA construction loan to build your dream home
A housing opportunity for those who serve their community, Good Neighbor Next Door offers homes in revitalization areas with deep discounts on the listing price. Teachers, first responders, law enforcement, and firefighters may qualify if they commit to living in the home for three years.
Dig deeper: Good Neighbor Next Door program — How does it work, and who qualifies?
For victims of a disaster who have lost their homes, the 203(h) program provides loans with no down payments. Up-front mortgage insurance premiums will still be due, but they can be financed into the loan. Ongoing MIPs are added to the monthly payment.
FHA Hawaiian Home Lands Mortgage
Native Hawaiians can access affordable housing with a Hawaiian home lands loan that works like a regular FHA 203(b) mortgage. The FHA-insured program addresses lender resistance to issuing mortgages on dwellings located on land leases administered by the Department of Hawaiian Homelands.
FHA Indian Reservations and Other Restricted Lands (248) Mortgage
The Section 248 mortgage is coordinated with local tribal leadership to insure FHA loans for homes on an Indian reservation.
FHA loans have provided housing to so many families of modest means because of their lenient lending terms. However, the FHA also has stiff mortgage insurance premium requirements. Conventional loans have similar but lower mortgage insurance costs, and if a home buyer can qualify for a conventional loan, they may save money over the long term.
Borrowers with military connections have access to a valuable benefit: a mortgage backed by the Department of Veterans Affairs. If you qualify, you’re likely to find that the no-down-payment VA loan is an excellent choice.
Dig deeper: FHA vs. VA loan — What are the differences?
A USDA loan might serve your needs better than an FHA mortgage if you are considering a home purchase in a qualifying rural area. USDA loans can offer 100% financing and flexible credit requirements.
Read more: USDA vs. FHA loan — Key differences and how to choose
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Lower credit score requirement than conventional loans.
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Down payment as low as 3.5%.
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No income limits.
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No homeownership education is required.
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You have the option to use an adjustable-rate mortgage.
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Mortgage insurance is required for the life of the loan if a borrower puts down less than 10%.
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Loan limits can put some homes with higher purchase prices out of reach.
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It can be more expensive than a conventional loan for well-qualified borrowers.
Dig deeper: The pros and cons of FHA loans
Sometimes, replacing your current FHA loan with a new and improved one is a great idea. Maybe interest rates have moved lower than what you’re paying now. Or, you want to get some cash from the equity in your house. FHA has ample refinancing choices for you to consider.
Read more: Want to refinance your FHA loan? Here are 4 options.
The Simple Refinance is a basic, no-frills loan replacement. Your old loan is paid off and you refi your balance into a new FHA loan. The usual goal is to get a lower interest rate and more affordable monthly payments.
If you have an existing FHA loan, the Streamline solution is the easiest FHA refi option available. There’s typically no appraisal, no credit check, and no income proof required.
Dig deeper: FHA Streamline Refinance — How does it work, and who is eligible?
When you’ve paid your mortgage for a while, you may discover a delightful surprise: Your home is worth a chunk of money. One way to access that value in the form of money in your pocket is with a cash-out refinance. The FHA cash-out refinance is a strong option to consider.
Learn more: FHA cash-out refinance — Requirements and guidelines
Here’s a refinance option with a home improvement focus. The 203(k) is for homeowners looking to do some renovations, whether it’s $5,000 or $75,000 worth of upgrades. If you have new carpeting, fresh paint, or a roof replacement in mind — or all of the above — the 203(k) is the FHA way.
Sometimes the best FHA refinance is not an FHA loan at all. Perhaps your financial situation has improved, your credit score has soared, and you’re ready to refi out of those monthly mortgage insurance premiums. If you have some equity in your home, it may be time to refinance into a conventional loan.
Read more: How to refinance from an FHA to conventional loan
What is an FHA loan, and who qualifies?
An FHA loan is a mortgage backed by the Federal Housing Administration. This means if you default on mortgage payments, the FHA will help reimburse your mortgage lender. You may qualify for an FHA mortgage loan if you have a 580 credit score, 3.5% down payment, and a debt-to-income ratio of 43% or less.
A downside of FHA loans is that you have to pay mortgage insurance for the entire life of the loan if your down payment is less than 10%. With conventional loans, you may be able to get rid of your private mortgage insurance once you reach 20% equity in your home.
It’s relatively easy to get an FHA loan, because they’re targeted to first-time home buyers and people who may have lower credit scores or a high amount of debt. If you have a 580 credit score and 3.5% down payment, there’s a good chance you’ll be approved.
If an FHA-approved lender cannot verify your employment and income or you are not eligible to work in the U.S., you will not qualify for an FHA-backed loan. Also, you will be disqualified if you do not have a Social Security number or are below the legal age to sign a loan agreement in your state.
What does FHA stand for?
FHA stands for Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development.
This article was edited by Laura Grace Tarpley.