FHA Loan Requirements in 2026: The Complete Guide

FHA loans exist for one reason: to make homeownership accessible to people who can't qualify for conventional financing. They accept lower credit scores, smaller down payments, and higher debt ratios than conventional loans — which is why they account for roughly 15% of all home purchases in the U.S.

But FHA loans come with trade-offs, especially around mortgage insurance. This guide covers every requirement, cost, and consideration so you can decide if an FHA loan is right for you.

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). The FHA doesn't lend money directly — it insures the loan, which reduces risk for lenders and allows them to offer more flexible terms.

FHA-approved lenders (banks, credit unions, mortgage companies) originate the loans. If you default, the FHA pays the lender's losses, which is why lenders are willing to accept riskier borrower profiles.

FHA Loan Requirements at a Glance

Credit Score Requirements

580+ Credit Score

• Minimum 3.5% down payment
• Most lenders will work with you
• This is the standard FHA path

500–579 Credit Score

• Minimum 10% down payment
• Fewer lenders will approve you (many set internal minimums of 580 or higher)
• Expect higher interest rates
• You may need to shop harder for a willing lender

Below 500

• Not eligible for FHA financing
• Focus on credit repair first — it may take 6–12 months to reach 500+

What FHA Lenders Actually Look For

Beyond the score itself, lenders review:

• Payment history: Late payments in the last 12 months are red flags. A single 30-day late payment may be okay with explanation.
• Collections and charge-offs: You may need to pay off collections over $2,000 or set up payment plans. Medical collections are generally excluded.
• Bankruptcy: Chapter 7 — wait at least 2 years from discharge. Chapter 13 — may qualify after 12 months of on-time payments with court permission.
• Foreclosure: Wait at least 3 years from the completion of foreclosure.
• Short sale: Wait at least 3 years.

Down Payment Rules

Minimum: 3.5%

On a $300,000 home, that's $10,500. Compared to 5%–20% for conventional loans, this is significantly more accessible.

[Acceptable Down Payment Sources](/blog/mortgage-down-payment-sources)

The FHA allows your entire down payment to come from sources other than your own savings:

• Gift funds: From family members, employers, labor unions, close friends (with documentation of the relationship), or charitable organizations. Gifts must be documented with a gift letter stating no repayment is expected.
• [Down payment assistance](/blog/down-payment-assistance-programs) programs: State, local, and nonprofit DPA programs are fully compatible with FHA loans. See our grants guide.
• Employer assistance: Some employers offer housing assistance as a benefit.
• Savings and checking accounts: Your own funds, obviously.
• 401(k) or IRA: Borrowing from retirement accounts (though this has its own risks and penalties).

Not allowed: The seller cannot give you the down payment. However, sellers can contribute up to 6% of the purchase price toward closing costs.

Documenting Your Down Payment

Lenders will trace the source of your down payment funds. Expect to provide:

• 2 months of bank statements (all pages, all accounts)
• Documentation of any large deposits (source letters, paper trail)
• Gift letters with donor's bank statements showing ability to give

Large unexplained deposits will delay or derail your application. If Uncle Mike writes you a $10,000 check, both of you need to document it.

Debt-to-Income Ratio (DTI)

Standard Limits

• Front-end DTI: Up to 31% (housing costs ÷ gross income)
• Back-end DTI: Up to 43% (all debts ÷ gross income)

With Compensating Factors: Up to 50%

Lenders can approve back-end DTIs up to 50% if you have compensating factors such as:

• Significant cash reserves (3+ months of payments)
• Minimal payment increase over current housing cost
• Strong employment history
• High credit score (relative to FHA minimums)
• Additional income not used for qualifying (part-time work, bonuses)

Example: You earn $6,000/month gross. Your proposed housing payment is $1,750 (29% front-end). Your total debts (housing + car + student loans) are $2,700 (45% back-end). With a 640 credit score and 4 months of reserves, many FHA lenders will approve this.

FHA Mortgage Insurance (MIP)

This is the biggest drawback of FHA loans. There are two components:

Upfront Mortgage Insurance Premium (UFMIP)

• Amount: 1.75% of the base loan amount
• On a $300,000 loan: $5,250
• Payment: Typically financed into the loan (added to your loan balance)
• Your actual loan: $300,000 + $5,250 = $305,250

Annual Mortgage Insurance Premium (Annual MIP)

Paid monthly as part of your mortgage payment:

On a $300,000 loan with 3.5% down (96.5% LTV):

• Annual MIP rate: 0.55%
• Annual cost: $300,000 × 0.0055 = $1,650
• Monthly cost: $137.50

How Long Do You Pay MIP?

This is crucial:

• If you put less than 10% down: MIP lasts for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity.
• If you put 10% or more down: MIP drops off after 11 years.

Since most FHA borrowers put 3.5% down, most pay MIP for the life of the loan. This is the primary reason many buyers refinance out of FHA loans once their credit and equity improve.

FHA Loan Limits (2026)

FHA sets maximum loan amounts by county, updated annually:

High-cost area examples (at or near ceiling):

• San Francisco County, CA: $1,209,750
• New York County (Manhattan), NY: $1,209,750
• Los Angeles County, CA: $1,209,750
• King County (Seattle), WA: $1,037,100

Standard area examples (at or near floor):

• Most counties in Texas, Ohio, Indiana, Tennessee: $524,225

Check your county's limit at HUD's FHA Mortgage Limits page.

Property Requirements

FHA loans have strict property standards. The home must pass an FHA appraisal, which evaluates both value and condition.

Property Must Be

• Your primary residence (no investment properties or vacation homes)
• A 1–4 unit property (you can buy a duplex, triplex, or fourplex and live in one unit)
• In livable condition meeting HUD's Minimum Property Requirements

FHA Appraisal Standards

The FHA appraiser checks for:

• Safety: Functioning utilities, no exposed wiring, no lead paint hazards (for pre-1978 homes), working smoke detectors
• Structural soundness: No significant foundation issues, intact roof with at least 2 years of remaining life, no major water damage
• Adequate access: Working doors, safe stairs, proper egress from bedrooms
• Clean water and sewage: Functioning well and septic (if applicable)
• No health hazards: No mold, asbestos, or environmental contamination

Common FHA Appraisal Issues

These frequently cause problems:

1. Peeling or chipping paint on pre-1978 homes (lead paint risk)
2. Missing handrails on stairs
3. Broken windows
4. Roof with less than 2 years of remaining life
5. Standing water in the basement or crawl space
6. Non-functional utilities
7. Structural damage (cracked foundation, sagging floors)

If the appraisal flags issues, the seller must fix them before closing, or the deal may fall through. This is one reason some sellers prefer conventional offers over FHA.

Eligible Property Types

• Single-family homes
• Townhouses
• Condos (must be in FHA-approved condo projects)
• Manufactured homes (on a permanent foundation)
• 2–4 unit properties (you must occupy one unit)

FHA Loan Types

FHA 203(b) — Standard Purchase Loan

The basic FHA loan for purchasing a home. This is what most people mean when they say "FHA loan."

FHA 203(k) — [[Renovation](/blog/bathroom-renovation-cost-guide) Loan](/blog/construction-loan-types)

Finances both the purchase and renovation of a fixer-upper:

• Standard 203(k): For major renovations over $35,000. Requires a HUD consultant.
• Limited 203(k): For renovations under $35,000. Less paperwork.

This is powerful: you can buy a home that needs work, finance the repairs, and end up with a home worth more than you paid.

FHA Streamline Refinance

For existing FHA borrowers who want to refinance to a lower rate:

• No appraisal required
• Reduced documentation
• Lower UFMIP (0.01% if refinancing within 3 years)

FHA vs. Conventional: When to Choose Each

Choose FHA When:

• Credit score is below 700
• You have limited savings (3.5% down)
• Your down payment comes from gift funds or grants
• You had a bankruptcy or foreclosure 2–3 years ago
• Your DTI is above 43% but you have compensating factors

Choose Conventional When:

• Credit score is 700+
• You can put 5%–20% down
• You want to avoid lifetime MIP
• The property might not pass FHA appraisal standards
• You're buying a condo not on the FHA-approved list

Cost Comparison: FHA vs. Conventional

$300,000 home, 3.5% down (FHA) vs. 5% down (conventional), 30-year fixed

In the early years, costs are similar. But after ~8 years when conventional PMI drops off, the conventional loan becomes significantly cheaper. Over the full 30 years, the conventional loan saves $15,000–$20,000+ in mortgage insurance alone.

Strategy: Start with FHA to get into the home, then refinance to conventional once you have 20% equity and a 700+ credit score.

How to Apply for an FHA Loan

1. Check Your Credit

Pull your reports and scores. If you're below 580, spend 3–6 months improving your credit before applying.

2. Find FHA-Approved Lenders

Search HUD's lender list. Get quotes from at least 3 lenders — rates and fees vary.

3. Gather Documents

• 2 years of tax returns
• 2 years of W-2s (or 1099s if self-employed)
• 2 months of pay stubs
• 2 months of bank statements (all pages)
• Government-issued ID
• Social Security number

4. Get Pre-Approved

A pre-approval letter shows sellers you're serious and tells you exactly how much you can borrow.

5. Find a Home and Make an Offer

Work with a real estate agent experienced with FHA transactions.

6. FHA Appraisal and Underwriting

The lender orders the FHA appraisal. If it passes, your loan moves to final underwriting.

7. Close

Sign the paperwork, pay closing costs, get the keys.

FAQs

Can I use an FHA loan to buy a fixer-upper?

Yes — the FHA 203(k) loan is designed exactly for this. It combines the purchase price and renovation costs into a single mortgage.

Can I get an FHA loan with collections on my credit report?

Yes. Medical collections are generally ignored. For non-medical collections totaling over $2,000, you'll need to pay them off or set up a payment plan (which counts toward your DTI).

How long after bankruptcy can I get an FHA loan?

Chapter 7: 2 years from discharge. Chapter 13: 1 year into the repayment plan with court approval and on-time payments.

Can I buy a condo with an FHA loan?

Yes, but only in FHA-approved condo projects. Check the FHA condo approval list. If the complex isn't approved, the HOA can apply for approval, but it takes time.

Can I use an FHA loan for a rental property?

No — FHA loans are for primary residences only. However, you can buy a 2–4 unit property, live in one unit, and rent out the others. The rental income can even help you qualify.

What's the minimum FHA loan amount?

There's no minimum set by FHA. However, most lenders have internal minimums of $50,000–$100,000 because small loans aren't profitable for them.

Can I have two FHA loans at the same time?

Generally no — FHA allows only one FHA loan per borrower. Exceptions exist for relocations (more than 100 miles for work) and certain family size increases.

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Not sure if FHA is right for you? Use HonestCasa's loan comparison tool to compare FHA, conventional, and VA options side by side.

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• [Best College Towns for [Rental Property Investment](/blog/best-states-for-rental-property-investment-2026)](/blog/best-college-towns-for-rental)