🏡 What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency created in 1934 to help Americans become homeowners. The FHA doesn't lend money directly - instead, it insures loans made by approved lenders, protecting them from losses if borrowers default.
This insurance allows lenders to offer more flexible terms than conventional mortgages: lower down payments, lower credit scores, and higher debt-to-income ratios. FHA loans have helped 50+ million Americans buy homes since 1934.
🔑 Key FHA Loan Benefits:
- ✅ 3.5% down payment (vs 20% conventional) - Save $86,497 upfront on $524K home
- ✅ 580 credit score minimum (vs 620-640 conventional)
- ✅ 50% debt-to-income ratio (vs 43% conventional)
- ✅ Seller can pay closing costs (up to 6% of purchase price)
- ✅ Gift funds allowed for down payment (from family)
- ✅ Assumable loans - buyer can take over your rate
- ✅ Flexible credit history - recent bankruptcy/foreclosure OK (2-3 years)
🚀 Ready to Get Pre-Approved for FHA Loan?
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Compare FHA Lenders →📋 FHA Loan Requirements 2026 (Complete Checklist)
Here are the complete FHA loan requirements for 2026:
1. Credit Score Requirements
| Credit Score | Minimum Down Payment | Approval Odds |
|---|---|---|
| 580-619 | 3.5% | Good (manual underwriting) |
| 620-679 | 3.5% | Excellent |
| 680-739 | 3.5% | Best rates |
| 740+ | 3.5% | Lowest rates (consider conventional) |
| 500-579 | 10% | Difficult (few lenders) |
💡 Pro Tip:
If your credit score is 740+, compare FHA vs conventional loans. Conventional may have lower rates and no lifetime mortgage insurance.
2. Down Payment Requirements
Minimum down payment: 3.5% of purchase price for credit scores 580+
Down Payment Examples (2026):
- • $300,000 home = $10,500 down (3.5%)
- • $400,000 home = $14,000 down (3.5%)
- • $524,225 home (FHA limit) = $18,348 down (3.5%)
- • $600,000 home = $21,000 down (3.5%)
💰 Down Payment Sources Allowed:
- Personal savings
- Gift funds from family (with gift letter)
- Down payment assistance programs ($5K-$15K grants)
- 401(k) loans or withdrawals
- Sale of assets (stocks, car, etc.)
3. Debt-to-Income Ratio (DTI)
Maximum DTI: 50% (43% preferred for best approval odds)
DTI Calculation:
DTI = (Monthly Debts + New Mortgage Payment) ÷ Gross Monthly Income
Example:
- • Gross monthly income: $8,000
- • Car payment: $500
- • Student loans: $300
- • Credit cards: $200
- • New mortgage payment: $2,400
- • Total monthly debts: $3,400
- • DTI: $3,400 ÷ $8,000 = 42.5% ✅ APPROVED
💵 FHA Loan Limits 2026 (By County)
FHA loan limits vary by county based on local median home prices. 2026 limits increased 5.2% from 2025.
| Area Type | 2026 Limit | Examples |
|---|---|---|
| Low-Cost Areas | $498,257 | Rural counties, Midwest |
| Standard Areas | $524,225 | Most US counties (75%) |
| High-Cost Areas | $1,149,825 | San Francisco, NYC, LA, Seattle |
🔍 How to Find Your County's FHA Limit:
- Visit HUD.gov FHA Loan Limits
- Enter your state and county
- View your 2026 FHA loan limit
Important: If home price exceeds FHA limit, you'll need a conventional loan, jumbo loan, or VA loan (if veteran).
💰 FHA Mortgage Insurance Explained (The Hidden Cost)
The biggest downside of FHA loans is mortgage insurance. Unlike conventional loans where PMI can be removed at 20% equity, FHA mortgage insurance lasts for the life of the loan if you put down less than 10%.
1. Upfront Mortgage Insurance Premium (UFMIP)
Cost: 1.75% of loan amount, paid at closing (usually rolled into loan)
UFMIP Examples:
- • $300,000 loan = $5,250 UFMIP
- • $400,000 loan = $7,000 UFMIP
- • $524,225 loan = $9,174 UFMIP
- • $600,000 loan = $10,500 UFMIP
2. Annual Mortgage Insurance Premium (MIP)
Cost: 0.55% annually (paid monthly), for life of loan if down payment <10%
Monthly MIP Examples:
- • $300,000 loan = $137/month MIP
- • $400,000 loan = $183/month MIP
- • $524,225 loan = $240/month MIP
- • $600,000 loan = $275/month MIP
💣 Total MIP Cost Over 30 Years:
- • $300K loan: $49,320 total MIP
- • $524K loan: $86,400 total MIP
⚠️ How to Remove FHA Mortgage Insurance:
Only 2 ways to remove FHA MIP:
- Refinance to conventional loan once you have 20% equity (takes 5-10 years typically)
- Pay off the loan (sell home or pay in full)
Exception: If you put down 10%+ on FHA loan, MIP drops off after 11 years automatically.
🚀 Compare FHA vs Conventional Loans
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Compare Loan Options →❓ Frequently Asked Questions
Can I use an FHA loan for investment property?
NO. FHA loans are for primary residences only. You must live in the home for at least 1 year. For investment properties, use conventional loans, DSCR loans, or portfolio loans.
Can I get an FHA loan with bankruptcy or foreclosure?
YES! Bankruptcy: Wait 2 years after Chapter 7 discharge, 1 year after Chapter 13 (with court approval). Foreclosure: Wait 3 years. Short sale: Wait 3 years. Must have re-established credit and stable income.
What are FHA loan rates in 2026?
FHA rates in January 2026: 6.25-6.75% for 30-year fixed. Rates are 0.25-0.5% higher than conventional due to mortgage insurance risk. 15-year FHA rates: 5.75-6.25%. Rates vary by credit score, down payment, and lender.
How long does FHA loan approval take?
Pre-approval: 1-3 days. Full approval: 30-45 days from application to closing. FHA appraisals take 7-14 days. Delays happen if property doesn't meet FHA standards (peeling paint, foundation issues, etc.).
Can I buy a fixer-upper with FHA loan?
YES, with FHA 203(k) Rehabilitation Loan. Allows you to finance purchase + renovation costs in one loan. Max renovation: $35,000 (limited 203k) or unlimited (standard 203k). Great for buying distressed properties and fixing them up.
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