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FHA Loans

Administered by:

Federal Housing Administration (FHA), U.S. Department of Housing and Urban Development (HUD)

· Federal · Government-Insured Mortgage

Funding status: Active

About the FHA Loans

FHA Loans are government-insured mortgages backed by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). Instead of lending money directly, FHA insures loans made by private lenders, which protects the lender if the borrower defaults. That insurance lets lenders offer FHA loans with a down payment as low as 3.5% and credit score requirements starting at 500. FHA loans are the most common mortgage type for first-time homebuyers and the base most down payment assistance programs are built around.

To qualify for an FHA loan in 2026, you need a credit score of at least 580 to put the minimum 3.5% down. Borrowers with credit scores between 500 and 579 can still qualify but must put 10% down. There are no income limits for FHA loans, which sets them apart from nearly every state down payment assistance program. Your total debt-to-income ratio generally cannot exceed 43%, though lenders may stretch to 50% with strong compensating factors. The home must be your primary residence. FHA loan limits for 2026 range from a floor of $541,287 in lower-cost areas to a ceiling of $1,249,125 in high-cost markets for a single-family home. Eligible properties include single-family homes, 2 to 4 unit properties, FHA-approved condominiums, and manufactured homes built after June 15, 1976 on permanent foundations.

Next to conventional mortgages from Fannie Mae or Freddie Mac, FHA asks for a lower credit score and a smaller down payment. HomeReady and Home Possible start at a 620 score with 3% down, and VA loans offer 0% down only to eligible veterans and service members. FHA's price is mortgage insurance: a 1.75% upfront premium (UFMIP) plus a 0.55% annual MIP that stays for the life of the loan when you put less than 10% down. Even so, FHA remains the default for buyers with thin savings or credit scores below the conventional cutoff.

How much assistance

Up to FHA county loan limits ($541,287 floor to $1,249,125 ceiling for single-family in 2026)

Eligibility

First-time buyer required: No
Credit score minimum: 500
Geographic restrictions: Available nationwide; property must be primary residence
Homebuyer education required: No

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How to Apply for FHA Loans

Step 1: Check your eligibility

You need a minimum credit score of 580 for a 3.5% down payment, or 500 to 579 for a 10% down payment. Your total debt-to-income ratio should be at or below 43%, though some lenders accept up to 50% with compensating factors like cash reserves or a higher credit score. There are no income limits for FHA loans. The home must be your primary residence. Check 2026 FHA loan limits for your county at https://entp.hud.gov/idapp/html/hicostlook.cfm to confirm your purchase price falls within limits.

Step 2: Find an FHA-approved lender

Not every lender offers FHA loans, and you must use one that is FHA-approved. Use HUD's lender search tool at https://www.hud.gov/hud-partners/single-family-lender-list to find approved lenders in your area. Major national lenders like Rocket Mortgage, loanDepot, and Freedom Mortgage are FHA-approved, as are many local banks and credit unions. If you plan to use a down payment assistance program, confirm that your lender participates in that specific program as well.

Step 3: Get pre-approved

Provide your lender with your last two years of tax returns, W-2s, last 30 days of pay stubs, last two months of bank statements, and a valid government-issued ID. Self-employed borrowers should bring two years of business tax returns and profit and loss statements. Your lender will pull your credit, verify your employment, and calculate your maximum loan amount. Pre-approval typically takes 1 to 3 business days and gives you a letter showing sellers you are a qualified buyer.

Step 4: Find a home and make an offer

Search for a home within FHA loan limits for your county. FHA-eligible properties include single-family homes, 2 to 4 unit properties (you must live in one unit), FHA-approved condos, and manufactured homes on permanent foundations built after June 15, 1976. Search the FHA-approved condo list at https://entp.hud.gov/idapp/html/condlook.cfm before making an offer on a condominium. Your real estate agent submits your offer with your pre-approval letter.

Step 5: Complete the FHA appraisal

Once your offer is accepted, your lender orders an FHA appraisal. The FHA appraiser checks both the market value and that the home meets FHA minimum property standards for safety, security, and soundness. Common issues that derail closings include peeling paint on pre-1978 homes, missing handrails on stairs, faulty electrical, and roofing problems. If the home does not pass, repairs must be completed before closing or the deal may fall through.

Step 6: Close on your loan

Your lender finalizes underwriting, and you attend closing to sign your mortgage documents. The 1.75% upfront MIP is typically financed into your loan amount. Closing generally takes 30 to 45 days from accepted offer. Bring a cashier's check or arrange a wire transfer for your down payment and closing costs, minus any DPA funds being applied.

Real Cost Example

FHA's 3.5% minimum works out to $14,700 on a $420,000 Charlotte, North Carolina purchase, which leaves a base loan of $405,300. The 1.75% upfront mortgage insurance premium (UFMIP) on that base is $7,093. Most borrowers roll it into the balance instead of paying it at the closing table, so the total FHA loan comes to about $412,393.

At 0.55%, the annual MIP adds roughly $189 to each monthly payment. Charlotte buyers should also budget $8,500 to $12,500 for closing costs, which sit on top of the down payment. With no assistance at all, the cash due at closing lands at approximately $23,200 to $27,200, which is more than many first-time buyers have saved.

Adding the $15,000 forgivable NC 1st Home Advantage Down Payment wipes out the $14,700 down payment and sends the extra $300 toward closing costs. That option rides on an NC Home Advantage Mortgage and replaces its standard 3% assistance (roughly $12,159 on this loan), because NCHFA lets each buyer use only one of its assistance products. First-time buyers usually do better with the flat $15,000; repeat buyers can still take the 3%.

Combining With Other Programs

FHA loans are the most DPA-compatible mortgage type available. Nearly every state housing finance agency program, federal program, and local assistance program in the country allows pairing with FHA financing. In North Carolina, FHA loans work with the NC Home Advantage Mortgage, paired with either the $15,000 NC 1st Home Advantage Down Payment or up to 3% of the loan as a deferred second mortgage (not both). They also work with the FHLBA First Time Homebuyer Product ($17,500 forgivable). Qualifying community heroes can access the FHLBA Community Partners Product for up to $20,000.

County and city programs typically accept FHA as well, as do nonprofit programs like NACA and Habitat for Humanity partner loans. The key restriction is that most DPA programs layer their own income limits and credit score minimums on top of FHA's baseline requirements. Some DPA programs also cap the combined loan-to-value ratio, which can limit how many programs you can stack on a single transaction.

Work with a lender who participates in the specific DPA programs you want to use, because not every FHA-approved lender offers every assistance program. State housing finance agencies maintain published lists of participating FHA lenders for their programs, so check that list before you apply for pre-approval and ask the lender which of those programs it offers today.

Pros and Cons

The biggest advantage of FHA loans is accessibility. With a minimum credit score of 500 and a down payment as low as 3.5%, FHA opens the door for buyers who cannot qualify for conventional financing. There are no income limits, and the program is available nationwide through thousands of approved lenders. FHA is also the most compatible loan type for stacking with down payment assistance programs, making it the foundation of most first-time buyer strategies. Compared to VA loans (0% down, no mortgage insurance), FHA is more expensive but available to all buyers regardless of military service. Compared to USDA loans (0% down, lower fees), FHA has no geographic restrictions but costs more in insurance.

The primary downside is the mortgage insurance premium. The 1.75% upfront MIP plus 0.55% annual MIP adds real cost over time, and unlike conventional PMI, FHA MIP cannot be removed if you put less than 10% down. To stop paying MIP, you must refinance into a conventional loan once you have built enough equity, typically 20%. Buyers with credit scores above 700 and at least 5% saved for a down payment will usually pay less over the life of the loan with a conventional mortgage through HomeReady or Home Possible. FHA is ideal for buyers with credit scores between 500 and 700, limited savings, or those using DPA programs that require or favor FHA financing.

Frequently Asked Questions

Do I have to pay mortgage insurance on an FHA loan?+

Yes. FHA loans require two types of mortgage insurance: a 1.75% upfront mortgage insurance premium (UFMIP) paid at closing and an annual MIP of 0.55% for most borrowers, divided into monthly payments. If you put less than 10% down, the annual MIP lasts for the entire life of the loan. If you put 10% or more down, the annual MIP drops off after 11 years. This is the main cost difference between FHA and conventional loans, where private mortgage insurance (PMI) can be removed once you reach 20% equity.

Can I use down payment assistance with an FHA loan?+

Yes, and FHA is the most DPA-compatible loan type available. Nearly every state housing finance agency, federal assistance program, and local grant or forgivable loan program allows pairing with FHA financing. For example, the NC 1st Home Advantage provides $15,000 as a forgivable loan that can cover your entire 3.5% FHA down payment on homes up to $428,571. The key is finding a lender who is both FHA-approved and participates in the specific DPA program you want to use.

What is the difference between an FHA loan and a conventional loan?+

FHA loans allow credit scores as low as 500 (with 10% down) or 580 (with 3.5% down), while conventional loans usually start at a 620 credit score with 3% down. FHA loans have mandatory mortgage insurance for the life of the loan if you put less than 10% down, while conventional PMI can be removed at 20% equity. FHA also has county-based loan limits ($541,287 to $1,249,125 in 2026) that may be lower than conventional conforming limits ($832,750 standard). For buyers with credit scores above 700 and at least 5% down, a conventional loan often costs less over time.

Can I buy a multi-unit property with an FHA loan?+

Yes. FHA loans allow you to purchase 2, 3, or 4 unit properties as long as you live in one of the units as your primary residence. This is a popular strategy for first-time buyers because rental income from the other units can help you qualify for a larger loan and offset your mortgage payment. FHA loan limits are higher for multi-unit properties: in 2026, the floor limits are $692,820 for a duplex, $837,424 for a triplex, and $1,040,930 for a four-plex in standard-cost areas. For 3 and 4 unit properties, FHA applies a self-sufficiency test to confirm rental income covers the mortgage.

How long after a bankruptcy or foreclosure can I get an FHA loan?+

2 years after a Chapter 7 bankruptcy discharge and 3 years after a foreclosure are FHA's standard waiting periods. For a Chapter 13 bankruptcy, you may be eligible after 12 months of on-time payments with court approval, or after discharge. FHA may shorten the Chapter 7 waiting period to 12 months if the bankruptcy was caused by documented extenuating circumstances like a serious medical event or the death of the primary wage earner. These waiting periods are shorter than conventional loans, which require 4 years after bankruptcy and 7 years after foreclosure.

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