FHA loans: Requirements, limits, and rates

If you’re starting out on the home buying journey, you might have heard of FHA loans, but what does “FHA” stand for, and why should you consider this type of loan?¹

A Federal Housing Administration (FHA) loan might be a good option if you have debt or a lower credit score. You might even be able to get an FHA loan with a bankruptcy or other financial issue on your record.

Let’s take a closer look at FHA home loans, their requirements, and whether an FHA loan might be right for you.

What is an FHA loan?

An FHA loan is a mortgage backed by the Federal Housing Administration and issued by an approved lender. The FHA guarantee helps make homeownership more accessible for those with lower credit scores, limited savings, or past financial challenges.

For instance, borrowers can generally qualify for an FHA loan with a credit score as low as 580 (or 500 if they make a down payment of at least 10%).² Meanwhile, other types of mortgages generally require a minimum credit score of 620.

How do FHA loans work?

Because of how FHA loans are backed, lenders are protected against loss if a borrower defaults. This reduces the lender’s risk and is what allows them to offer loans with more flexible credit score and down payment requirements.

The FHA sets baseline loan guidelines, but individual lenders may have additional requirements (called overlays) that borrowers must meet. Here are the key stages of qualifying for an FHA loan:

• Application: Apply for an FHA loan with a participating lender.
• Documentation: Share any required loan documents, such as proof of income and assets.
• Underwriting: Give the lender time to evaluate your financial position and ability to take on a loan.
• Appraisal: Commission a professional appraisal to ensure the property value supports the loan amount.
• Mortgage insurance requirements: FHA loan borrowers must pay 1.75% of the loan amount upfront and 0.45% to 1.05% annually to protect the lender.
• Closing: Pay any closing costs and sign on the dotted line to finalize the loan and take ownership of the property.

Key benefits of FHA loans

Low down payment and lenient credit score requirements often make FHA loans attractive for home buyers, especially first-time home buyers.

Here are some benefits of FHA loans:

• Credit score requirements are low compared to most other loans.
• Your lender can accept a low down payment.
• Qualifying for an FHA loan may still be possible even if you have a bankruptcy or other financial issues in your financial history.
• FHA closing costs can often be rolled into your loan.

FHA loan requirements

Borrowers must meet certain requirements to qualify for an FHA loan. For example:

• The home you consider must be appraised by an FHA-approved appraiser.
• You can only get a new FHA loan for your primary residence, meaning it can’t be an investment propertyor second home.
• You must occupy the property within 60 days of closing.
• The loan requires an inspection, and the inspection must report whether the home meets minimum property standards.

There are a few more specific conditions to qualify, including a down payment amount, mortgage insurance, credit score, loan limits, and income requirements. We’ll explore these conditions in more depth below.

FHA loan down payments

Your down payment is a percentage of the purchase price of a home and is the amount you put down for that home. The minimum down payment you’re required to make on an FHA loan is directly linked to your credit score. Your credit score is a number ranging from 300 to 850 that’s used to indicate your creditworthiness.

An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher. If you can make a 10% down payment, your credit score can be in the 500 – 579 range. Rocket Mortgage requires a minimum credit score of 580 for FHA loans. A mortgage calculator can help you estimate your monthly payments, and you can also see how your down payment amount affects them.

Note that cash down payments can be made with gift assistance for an FHA loan, but they must be well-documented to ensure the assistance is truly a gift and not a loan in disguise.

FHA credit score guidelines

Several factors determine your credit score, including:

• The type of credit you have (credit cards, loans, etc.)
• Credit utilization, which is how much credit you use
• Whether you pay your bills on time
• The amount you owe on your credit cards
• How much new and recent credit you’ve taken on

FHA DTI requirements

If you have a higher credit score, you might qualify with a higher debt-to-income ratio, or DTI. DTI is your total monthly debt payments divided by your monthly gross income (your monthly income before taxes), expressed as a percentage. A good DTI is generally considered 35% or below.

How to calculate your DTI

To determine your DTI, divide your debts by your monthly gross income. For example, if your debts – which include your student loans and car loan – reach $2,000 per month and your income is $8,000 per month, your DTI is 25%.

The lower your DTI, the better off you’ll be. If you have a higher DTI, you could still qualify for an FHA loan if you have a higher credit score.

The FHA says your monthly mortgage payment should be no more than 31% of your monthly gross income. Meanwhile, your DTI should not exceed 43% of your monthly gross income in certain circumstances if your loan is being manually underwritten. As noted above, you may qualify with a higher DTI if you have a higher credit score.

FHA income requirements

Your eligibility for an FHA loan doesn’t hinge on a particular income amount, but you must prove you have a steady employment (or self-employment) history. Your income must be verifiable by sharing pay stubs, W-2s, federal tax returns, and bank statements with your lender. Your lender may ask for other examples of verification as well.

FHA loan limits

There’s a maximum limit to what you can borrow for an FHA loan, depending on the county the home is in.

The maximum FHA lending amount for high-cost areas (such as large metropolitan areas) is $1,249,125 for 2026. In lower-cost areas, the FHA limits are based on county, but generally, for one-unit properties, the 2026 limit is $541,287. If you have multiple units, limits may be higher.

You can look up the FHA mortgage limits for one or more areas on the FHA mortgage limits page. The page also includes a median sale price value for each area. Those are the median price estimates used for loan limit determination, according to the Department of Housing and Urban Development (HUD).

FHA mortgage insurance

FHA loans require two types of mortgage insurance: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). Both insure FHA lenders against losses, allowing them to extend more flexible loan terms to qualifying borrowers.

Typically, UFMIP is added to the loan amount, while MIP is wrapped into the monthly mortgage payment. The exact cost of mortgage insurance depends on the loan amount, loan term, and down payment percentage.

Outside of the mortgage insurance requirement and flexible qualification criteria, however, FHA loans function similarly to conventional loans in terms of monthly payments and amortization.

How long do I have to pay MIP?

How long you must pay mortgage insurance depends on your down payment and loan term. For instance, borrowers who put down less than 10% must pay mortgage insurance for the full life of the loan, while those who put down at least 10% can stop paying MIP after 11 years.

Keep in mind that the longer you pay mortgage insurance, the higher your total loan costs will be. If you’re required to pay MIP for the life of the loan but already have 10% or more in equity, you may want to consider refinancing.

FHA interest rates

FHA interest rates can be competitive compared to conventional mortgage rates. This is because the government backing allows lenders to offer you a lower rate. The rate depends on several factors, including national mortgage interest rates, your income and credit score, the amount you plan to borrow, your down payment amount, and your DTI.

Types of FHA home loans

There are several types of FHA loans. The type you choose limits the type of home you can buy and how you can spend the money you receive. This makes it especially important to be sure you’re getting the right type of loan. If none of the loan types discussed next match your goals, you might want to consider another type of government loan.

FHA purchase loans

An FHA purchase loan (aka an FHA 203(b) loan) is the standard FHA mortgage used for home purchases.

When purchasing a home, you can put as little as 3.5% down if you have a median FICO^® Score of 580. If you have a score that low, you’ll need to keep an equally low DTI. Rocket Mortgage requires a ratio of no more than 38% before your mortgage payment is included, and no more than 45% once it’s included.

If your median FICO^® Score is 620 or higher, you may be able to qualify with a higher DTI. In no event will your DTI be able to rise above 57%.

Property types eligible for FHA purchase financing include single-family homes, small multifamily properties, and some condos that meet FHA approval criteria. At Rocket Mortgage, you can purchase up to a four-unit property with an FHA loan. In all cases, the property must meet FHA minimum property standards, which help ensure the home is safe, sound, and secure.

FHA purchase loans can also be fixed- or adjustable-rate mortgages (ARMs). A fixed rate means the interest rate remains the same for the duration of the loan, while an adjustable rate means it can change periodically.

FHA rate-and-term refinances

Let’s say you have a different type of mortgage, and interest rates are falling. Perhaps you’re interested in refinancing to take advantage of better mortgage rates but your credit profile has taken a hit.

FHA has two types of rate-and-term refinances. A regular FHA rate-and-term refinance involves going from a different type of loan such as a conventional loan back to an FHA loan. FHA Streamlines involve going from an existing FHA loan to another FHA loan. For the purposes of this section, we'll assume you're going from a different loan to an FHA loan. FHA Streamlines will be covered below.

An FHA refinance could be a good option because of its less-stringent credit requirements. You can use this to lower your rate or change your term with a FICO^® Score median as low as 580, assuming you have a low DTI. You may be able to carry more debt into the transaction if your median FICO^® is 620 or higher.

Depending on the amount of equity you carry into the rate-and-term refinance, you could end up paying mortgage insurance premiums for the life of the loan in addition to an upfront premium. If you’re already in an FHA loan, you may save some money on your rate-and-term transaction.

FHA cash-out refinance

It’s also possible to get a cash-out refinance with an FHA loan. Rocket Mortgage requires a minimum median credit score of 620 for an FHA cash-out refinance. The exception here is if the money is being used solely to consolidate existing debt. In that case, you only need a 580 qualifying score. The FHA requires that if you convert your property value into cash, you leave at least 20% equity in your home.

If you’re doing a cash-out refinance, you’ll need full documentation of income and assets, as well as employment verification.

FHA Streamline

An FHA Streamline refinance allows homeowners with an FHA loan to do a rate-and-term refinance with a few special benefits. To begin with, you may be able to refinance to a lower rate.

The logic here is that if you have a more affordable payment, you’re more likely to stay in your home and pay it off, which is good for the FHA. You may also be able to get a lower annual mortgage insurance rate and a partial refund for the upfront MIP.

Another benefit of FHA Streamlines is reduced documentation. Every situation is different, but because you already have an existing FHA loan, you may need less documentation for:

• The appraisal
• Employment verification
• Income and assets

FHA Streamline requirements

If you’re a Rocket Mortgage client, there is no minimum credit score to do an FHA Streamline. Otherwise, we require clients who are new to Rocket Mortgage to have a 580 qualifying score. Other lenders may have different requirements.

Timing is also important: You must make at least six payments on your current loan before you can be approved for a Streamline. Also, at least 210 days must pass between the first payment you make on your current loan and the first payment on the new Streamline.

Finally, you have to be up to date on your loan. For the purposes of an FHA Streamline, that means having no 30-day late payments in the last 6 months and only one payment that’s 30 days late in the last year.

FHA 203(k) loan

While Rocket Mortgage doesn’t offer this particular loan, an FHA 203(k) loan allows you to buy a home and make renovations with a single loan. While it’s possible to only make renovations with a 203(k) loan, this usually isn’t your most affordable choice.

The minimum FHA 203(k) loan balance is $5,000, so you can’t borrow less than this. Any home repairs or improvements you make must conclude within 6 months in order to stay within your loan terms.

Some eligible projects you can complete with a 203(k) loan include:

• Replacing old or dangerous flooring
• Making improvements to the home’s modernization (this can include adding systems such as central air)
• Adding or replacing roofing, sections of gutters, or plumbing
• Making accessibility improvements for disabled people who live in the home
• Making structural repairs and changes to the home’s foundation

There are two types of 203(k) loans: Standard loans and Limited loans. Limited loans require less paperwork for approval, while Standard loans give you more freedom to repair your property.

FHA vs. conventional loans

A conventional loan is a common alternative to an FHA loan. Though conventional mortgages have stricter requirements, broadly speaking, they typically come with similar interest rates and more flexible mortgage insurance (that ends when you reach 20% home equity), which is why borrowers often consider refinancing their FHA loan to a conventional loan.

Let’s take a closer look at some of the differences between conventional and FHA loans:

Is an FHA loan right for you?

If you’re still debating the pros and cons of an FHA loan compared to a conventional loan, remember that a conventional loan isn’t government-backed. Conventional conforming loans are guaranteed through Fannie Mae or Freddie Mac, which are government-sponsored enterprises that provide mortgage funds to lenders.

Here are a few of the main factors to consider when deciding whether to take out an FHA loan.

Stricter requirements

Besides minimum down payment, conventional loans have more stringent requirements than FHA loans, so you may need a higher credit score and a lower DTI to qualify. FHA loans, on the other hand, are non-conforming loans. This means they don’t satisfy Fannie Mae or Freddie Mac’s requirements for purchase.

Closing costs

Regardless of whether you choose a conventional or FHA loan, there are a few other costs to consider. You’ll have to pay closing costs, which are the fees associated with processing and securing your loan. Closing costs are typically 2% – 5% of your home loan amount.

Home maintenance costs

You should also budget 1% – 3% of your purchase price for maintenance. The exact percentage depends on the age of the house. If your house is newer, odds are that you’ll need fewer immediate repairs. But, you may need to set aside more money for an older house. Finally, if you live in an area with homeowners association fees, you’ll pay them on a monthly or yearly basis.

FHA loan FAQ

Still looking to learn more about FHA loans? Here are the answers to a few of the most frequently asked questions.

Is an FHA loan right for me?

An FHA loan might be the right loan option for you if you’re a first-time home buyer or having trouble getting a loan due to your financial history. However, it’s always important to weigh the pros and cons of any loan option before you fully commit to one. Make sure you’re aware of the total costs associated with FHA loans and that you’re financially prepared to pay them.

How do I apply for an FHA loan?

Once you choose the mortgage lender you’d like to work with, you can apply for an FHA loan. After you provide all of the necessary documents (tax returns, pay stubs, bank statements, etc.) to your lender, they’ll submit your application and work on a Loan Estimate.

Who qualifies for an FHA loan?

As with every loan, borrowers must meet certain requirements to qualify for an FHA loan. Borrowers must prove they have a steady employment history by showing pay stubs, W-2s, federal tax returns, and bank statements. In addition:

• The home must be appraised by an FHA-approved appraiser.
• The home must be a primary residence.
• You must occupy the property within 60 days of closing.
• An FHA inspection is required, and the inspection must report whether the property meets minimum property standards.

You’ll also need to make a down payment, pay mortgage insurance, and have a minimum credit score.

Is it hard to get an FHA loan?

FHA loans are designed to make the path to homeownership easier. Thanks to an FHA loan’s low minimum credit score requirement, lenient down payment requirement, and numerous loan programs, prospective homeowners should find it easier to get an FHA loan than a conventional loan.

The bottom line: FHA loans can make homeownership more accessible

FHA loans offer an accessible path to homeownership with flexible credit requirements, down payments as low as 3.5%, and competitive interest rates. These features make FHA loans especially valuable for first-time buyers, those with limited savings, or anyone rebuilding their credit.

However, it’s also important to look beyond the benefits of an FHA loan by considering their total cost. For example, upfront and ongoing mortgage insurance premiums can significantly impact your long-term costs, particularly if you’re required to pay MIP for the life of the loan. Take time to compare how an FHA loan stacks up against conventional and other mortgage options based on your finances and goals.

Ultimately, every buyer’s situation is unique. Whether an FHA loan is right for you depends on factors like your credit score, down payment capacity, debt-to-income ratio, and how long you plan to stay in the home. Consider speaking with a Home Loan Expert who can help you evaluate your mortgage options.

¹Rocket Mortgage is not acting on behalf of FHA or HUD.

²To qualify for this offer, you must meet all standard FHA eligibility requirements. In addition, your total mortgage payment, including taxes and insurance, cannot exceed 38% of your income, your debt-to-income (DTI) ratio cannot exceed 45%, and you must have 12 months of verifiable housing history immediately prior to your application, no late payments 30 days or greater in the last 12-months, and no derogatory marks on your credit report. Not available on jumbo loans. Asset statements may be needed, no more than 1 day of non-sufficient fund fees are allowed in the most recent 2 months prior to application. Additional restrictions/conditions may apply.

The FHA Streamline program may have stricter requirements in some states. In order to qualify for the FHA Streamline program, an immediate .5% minimum reduction in interest and mortgage insurance premium is required. Some states may require an appraisal.

The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.