FHA Loans FAQ

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What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), part of the US Department of Housing and Urban Development (HUD). The FHA doesn’t make the loan — your mortgage lender does — but the FHA insurance lets the lender accept lower credit scores and smaller down payments than conventional loans require.

Who is an FHA loan for?

First-time homebuyers without large down payment savings. Borrowers with credit scores between 500 and 660 who don’t qualify for conventional. Borrowers recovering from credit events (bankruptcy, foreclosure) that conventional loans haven’t seasoned past yet. Borrowers buying 1-4 unit properties who want to live in one unit and rent the rest.

Is an FHA loan only for first-time homebuyers?

No — that’s a common myth. FHA is available to any borrower who meets the credit, income, and property requirements. You can use FHA whether it’s your first home or your fifth. Some down payment assistance programs are first-time-buyer-only, but FHA itself is not.

Can I have more than one FHA loan at a time?

Generally no, but there are exceptions. The standard rule is one FHA loan at a time on the property you occupy as your primary residence. Exceptions include: relocating for work (50+ miles from current home), family size outgrows the current home, leaving a co-borrower’s home after divorce, or buying a 2-4 unit primary residence while keeping an existing FHA loan.

Is an FHA loan a government loan?

Yes, in the sense that the FHA (a government agency) insures the loan. The lender making the loan is a private mortgage company. The “government” piece is the FHA insurance that protects the lender if the borrower defaults — that insurance is what enables the easier qualifying rules.

What’s the minimum credit score for an FHA loan?

FHA’s minimum: 580 with 3.5% down, or 500-579 with 10% down. Below 500, FHA financing isn’t available. Note that individual lenders often impose overlays — minimum scores higher than FHA’s floor. We work files to FHA minimums where the borrower qualifies, rather than imposing extra overlays.

Why do some lenders require 620 or 640 minimum on FHA?

Lender overlays. The FHA itself allows 500-580 with 10% down or 580+ with 3.5% down — but individual lenders can require higher minimums to limit their risk. Many big retail lenders set 620 or 640 as their FHA minimum even though the FHA permits lower. Working with a no-overlay or low-overlay lender opens up FHA at scores conventional lenders won’t touch.

Can I get an FHA loan with no credit score?

Yes, through manual underwriting with non-traditional credit. FHA accepts non-traditional credit tradelines like rent payment history, utility payments, insurance payments, and other documented monthly obligations to establish creditworthiness. The file requires manual underwriting (not automated) and tighter DTI rules.

If I have a co-borrower, which credit score is used?

The lower of the two median scores. Each borrower gets a median credit score (middle of the three credit bureau scores). The lower of those two medians becomes the qualifying score for the file.

What credit score gets me the best FHA rate?

FHA rates are less credit-score-sensitive than conventional. The FHA insurance flattens pricing, so a 620 borrower and a 760 borrower typically see closer rates on FHA than on conventional. That’s part of why FHA is attractive for borrowers in the 580-680 range — the rate doesn’t punish lower credit as much.

How much down payment do I need for an FHA loan?

3.5% with credit score 580 or higher (96.5% LTV). 10% with credit score 500-579 (90% LTV). The down payment can come from your own funds, gift funds, or down payment assistance programs.

Can I use gift funds for my FHA down payment?

Yes — the entire down payment can be a gift. Acceptable gift sources include family members (spouse, parent, child, sibling, grandparent, uncle/aunt, in-laws), employer, charitable organizations, and government agencies providing assistance. Gift must be documented with a gift letter showing it’s not a loan, and the funds traced from the giver’s account to the closing.

Are down payment assistance programs allowed with FHA?

Yes. FHA accepts down payment assistance (DPA) programs from state housing finance agencies, local government programs, and certain nonprofit organizations. DPA can cover all or part of your 3.5% down payment and some closing costs. Available programs vary by state and county — we identify what’s available in your market at intake.

Can the seller pay my closing costs on an FHA loan?

Yes. FHA allows interested-party contributions (seller credits) up to 6% of the loan amount. That can cover closing costs, prepaid items (taxes and insurance), and certain rate-buydown structures. 6% is generous compared to conventional (which limits to 3% at higher LTVs).

Can I do a temporary buydown on FHA?

Yes. FHA allows seller-paid 2-1 buydowns, 3-2-1 buydowns, and other temporary buydown structures. The buydown funds (typically from the seller) lower the borrower’s rate for the first 1-3 years of the loan. Useful when the seller would otherwise reduce the price — the buydown often delivers more value to the buyer for the same dollar contribution.

Do I need reserves on an FHA loan?

For most 1-2 unit primary residences, FHA doesn’t require reserves on automated approvals. Manual underwriting and 3-4 unit properties typically require 1-3 months of PITI in reserves. Borderline files (high DTI, low credit) often need reserves as a compensating factor even when not strictly required.

What is FHA MIP?

MIP stands for Mortgage Insurance Premium. It’s the FHA’s insurance that protects the lender if you default. FHA requires two types: Upfront MIP (charged at closing) and Annual MIP (paid monthly as part of your payment).

How much is FHA Upfront MIP?

1.75% of the loan amount. On a $300,000 loan, that’s $5,250. The Upfront MIP can either be paid in cash at closing or financed into the loan (most borrowers finance it). When financed, the $5,250 gets added to your $300,000 loan, making the actual loan amount $305,250.

How much is FHA Annual MIP?

Ranges from 0.15% to 0.75% of the loan balance per year, depending on loan term, LTV at origination, and loan amount. Most 30-year FHA borrowers with less than 5% down pay 0.55% annual MIP. The annual MIP is divided by 12 and added to each monthly payment.

How long do I pay FHA Annual MIP?

For most FHA loans originated since 2013: the life of the loan if you put less than 10% down. If you put 10% or more down: 11 years. The “life of loan” rule is a major reason borrowers refinance FHA to conventional once they have 20% equity — to drop the MIP entirely.

Can I remove FHA MIP without refinancing?

Generally no, on post-2013 FHA loans with less than 10% down. The MIP stays for the life of the loan regardless of equity. The path to remove it is to refinance into a conventional loan, which has no PMI requirement at 20% equity.

Is FHA MIP tax-deductible?

Mortgage insurance deductibility has varied year to year in the tax code. As of recent tax law, MIP may or may not be deductible depending on income and current year rules. Consult your tax preparer for your specific situation — we can’t give tax advice.

What’s the 2026 FHA loan limit?

$541,287 for a one-unit property in most counties (the FHA “floor”). $1,249,125 for a one-unit property in high-cost counties (the FHA “ceiling”). Limits adjust annually based on county-level median home prices.

What are FHA limits for 2-4 unit properties?

Limits scale up by unit count. In the standard county (FHA floor): 2 units approximately $693,050, 3 units approximately $837,700, 4 units approximately $1,041,125. In high-cost counties, multi-unit limits scale proportionally higher. Exact 2026 limits per county are published by HUD.

How do I find my county’s FHA limit?

HUD publishes FHA loan limits county by county on the HUD website. We check the specific limit for your purchase county at intake to confirm your target loan amount fits within FHA’s reach.

What if my loan amount is above the FHA limit?

FHA isn’t available above the county limit. You’d route to a conventional loan (if the amount is within conforming limits) or a jumbo loan (if above). Sometimes a borrower close to the FHA limit can put more cash down to stay within FHA’s reach — we model both scenarios at intake.

No SSN required. Takes about 2 minutes.

What’s the maximum DTI on an FHA loan?

FHA’s default rule: 43% DTI on automated underwriting. With compensating factors (strong credit, large reserves, residual income, energy-efficient property), DTI can extend to 50%+. Manual underwriting has tighter caps that depend on credit and compensating factors. Most FHA borrowers come in well under the cap.

What income sources does FHA accept?

W-2 wages, self-employment income (2 years required), Social Security, pension, disability, child support, alimony, rental income from other properties, and bonus/commission income with 2-year history. Variable income gets averaged over 2 years. Non-taxable income (like child support or some disability) can be “grossed up” — increased by 25% to reflect the tax advantage.

Can a self-employed borrower get an FHA loan?

Yes. Self-employed borrowers need 2 years of personal AND business tax returns, a year-to-date P&L if more than 90 days past year-end, and verification the business is still active. FHA uses your net taxable income from the tax returns. If write-offs reduce qualifying income below what you need, a non-QM loan (bank statement, P&L, 1099) may qualify you on more.

Do I need 2 years of employment history?

2 years of stable employment history is the standard, but FHA allows exceptions. Recent college graduates with degrees in their work field can use the education time toward the 2-year history. Recent job changes within the same field count as continuous employment. Career changes outside the field need stronger compensating factors.

How does FHA handle deferred student loans?

FHA counts deferred student loans toward DTI even if you’re not currently paying. The calculated payment is the greater of: (a) the actual payment on the credit report, or (b) 0.5% of the outstanding loan balance, depending on FHA’s current policy. We confirm the current calculation method when reviewing your file.

Can I get an FHA loan after Chapter 7 bankruptcy?

Yes, after a 2-year waiting period from the bankruptcy discharge date. Reestablished credit during those 2 years strengthens the file. The FHA Back-to-Work program may shorten this to 12 months if the bankruptcy was due to a documented economic event (job loss with 20%+ income drop, medical issue) and you’ve reestablished credit.

Can I get an FHA loan after Chapter 13 bankruptcy?

Yes — Chapter 13 is more forgiving than Chapter 7 because it involves a court-supervised repayment plan. You can qualify for FHA after 12 months of on-time payments under the Chapter 13 plan with written permission from the bankruptcy trustee. Or 2 years from discharge with no trustee approval needed.

Can I get an FHA loan after foreclosure?

Yes, 3 years from the foreclosure sale date (when the home transferred to the bank or new owner). The FHA Back-to-Work program may reduce this to 12 months if the foreclosure was due to a documented economic event with reestablished credit since.

Can I get an FHA loan after a short sale?

Yes, with waiting periods that depend on the circumstances. 3 years from a short sale where the borrower was in default. Less waiting time if the short sale was completed while the borrower was current on payments and due to documented hardship (rare but possible).

What about collections, judgments, or tax liens?

Collections under specific thresholds are typically allowed without payoff. Larger collections, judgments, and tax liens generally need to be paid off or on a documented IRS payment plan before closing. Medical collections often get treated more leniently than other types. We review your specific credit report at intake.

What property types are eligible for FHA?

Single-family residences (attached and detached), townhomes, planned-unit developments (PUDs), 2-4 unit owner-occupied properties, FHA-approved condos, and manufactured homes meeting FHA requirements.

Can I use FHA for a 2-4 unit property?

Yes. FHA explicitly allows 1-4 unit owner-occupied properties. You must live in one of the units as your primary residence. Rental income from the other units helps you qualify (75% of fair market rent is typically counted). For 3-4 unit properties, FHA also applies a self-sufficiency test — the property’s rental income must meet specific thresholds defined by FHA.

Can I buy a condo with an FHA loan?

Yes, if the condo project is FHA-approved or qualifies for FHA spot approval. The condo association must meet specific FHA criteria including owner-occupancy ratios, financial reserves, insurance, and no concentration of investor-owned units. We check FHA approval status for your target condo project at intake.

Can I buy a manufactured home with FHA?

Yes. FHA’s Title II program finances manufactured homes attached to a permanent foundation on land the borrower owns. The home must meet HUD code (post-June 1976), be classified as real property (not personal property), and meet additional FHA-specific construction and foundation requirements. Older mobile homes typically don’t qualify.

Can I use FHA for an investment property?

No, not directly. FHA requires the borrower to occupy the property as a primary residence. The 2-4 unit FHA loan is a hybrid — you live in one unit and rent the others, but you’re still required to occupy. Pure investment properties (you don’t live there) need a conventional, DSCR, or other non-FHA loan.

Can I use FHA for a second home?

No. FHA requires the property to be your primary residence. Second homes (vacation properties you don’t live in primarily) need conventional or non-QM financing.

What is the FHA Streamline Refinance?

A simplified refinance from one FHA loan to another. No appraisal required in most cases (the lender uses the original purchase price/appraisal). No income verification required. Limited credit review. Designed to help FHA borrowers refinance to a better rate when market conditions improve, with minimal documentation.

Can I do a cash-out refinance with FHA?

Yes, up to 80% LTV. FHA cash-out requires full underwriting (unlike FHA Streamline) — appraisal, income verification, full credit review. The 80% LTV cap is more restrictive than VA cash-out (100% LTV available) and conventional cash-out (80% LTV) at the same level.

Can I refinance FHA to conventional?

Yes — and this is one of the most common FHA exit strategies. Once you have 20% equity (80% LTV or less), refinancing from FHA to conventional drops the FHA MIP entirely (since conventional with 20%+ equity has no PMI). The rate may also improve. Many borrowers run this play 3-7 years into their FHA loan.

What’s an FHA 203(k) renovation loan?

An FHA 203(k) loan finances both the purchase (or refinance) of a home AND its renovation in a single mortgage. The loan amount is based on the home’s projected value after renovations. Two versions: Standard 203(k) for projects over $35,000 or with structural work, and Limited 203(k) for projects under $35,000 with no structural changes.

What renovations does FHA 203(k) cover?

Structural alterations and reconstruction, room additions, modernization of kitchens and bathrooms, energy-efficient improvements, roofing/gutters/downspouts, flooring, painting, plumbing/electrical/HVAC, accessibility improvements. The Limited 203(k) excludes structural work. Both require all work to be completed by licensed contractors.

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What’s the difference between FHA and conventional?

FHA: government-insured, 500-580 credit floor, 3.5-10% down, MIP for life of loan (or 11 years at 10%+ down), more lenient credit-event seasoning, 6% seller concession allowed. Conventional: not government-insured, 620+ credit (most lenders), 3-5% down for first-time buyers, PMI removable at 20% equity, tighter credit standards, 3% seller concession at higher LTV. FHA wins on credit access; conventional wins on long-term insurance cost.

FHA vs VA — which is better for veterans?

For veterans, VA almost always wins. VA has no down payment requirement (vs FHA’s 3.5%+ minimum), no monthly mortgage insurance (vs FHA’s lifetime MIP), and often lower rates than FHA. The only scenario where FHA beats VA for a veteran is when they have no remaining entitlement and would owe full down payment on VA anyway.

FHA vs USDA — when does each apply?

USDA is 0% down but only available in USDA-designated rural and some suburban areas, with household income limits (typically 115% of area median income). FHA is available everywhere with no income limits, but requires 3.5% down. If you qualify for USDA, it’s usually the better deal because of the zero down. If the property isn’t USDA-eligible or your income exceeds the cap, FHA is the next option.

Can I switch from FHA to conventional later?

Yes — and most FHA borrowers should plan for this. Once you have 20% equity (whether through paying down principal or home value appreciation), refinancing from FHA to conventional drops the FHA MIP entirely. Many borrowers run FHA→conventional 3-7 years after the original purchase.

What is the FHA Back-to-Work program?

A program that allows borrowers to qualify for FHA financing as soon as 12 months after a major credit event (foreclosure, bankruptcy, short sale) if the event was due to a documented economic hardship and the borrower has reestablished credit and stable employment since. Requires HUD-approved housing counseling before applying.

What is the FHA Good Neighbor Next Door program?

A program offering 50% off the list price on HUD-owned properties in designated revitalization areas for law enforcement officers, teachers (K-12), firefighters, and EMTs. Requires a 3-year owner-occupancy commitment. Limited inventory but exceptional value when available.

What is FHA Energy Efficient Mortgage (EEM)?

An FHA program that lets borrowers finance energy-efficient improvements as part of their mortgage. The improvements (insulation, HVAC upgrades, solar, etc.) are added to the loan amount above standard FHA limits. The future utility savings count as compensating factors for qualifying.

Are there FHA programs for borrowers with disabilities?

FHA accepts non-taxable disability income at “grossed up” amounts (typically +25% to reflect tax-free status). The Section 203(h) program assists victims of presidential-declared disasters with 100% financing. State and local programs often layer with FHA for additional disability-related assistance.

Step 1: Start the intake.

Fill out the short intake form. No SSN. No hard credit pull. About 2 minutes. We use this to figure out if FHA is the right path for your scenario.

Step 2: Pre-qualification call.

We talk through your credit, down payment, income, and goals. We confirm FHA eligibility, calculate your maximum loan amount, and estimate your monthly payment including MIP. You leave knowing exactly what your purchasing power looks like.

Step 3: Formal pre-approval.

You submit W-2s, pay stubs, tax returns, asset statements, and ID. We pull credit. The lender reviews and issues an FHA pre-approval letter showing your maximum loan amount.

Step 4: House hunt and contract.

Find your home. Important: the property must meet FHA Minimum Property Requirements (MPR) — safe, sound, secure, and habitable. Some properties (those with significant deferred maintenance, safety hazards, or improper systems) won’t pass an FHA appraisal. Your agent helps you target FHA-viable properties.

Step 5: Appraisal.

FHA appraisals are more thorough than conventional. The appraiser checks the property condition against FHA’s Minimum Property Requirements — looking for peeling paint, missing handrails, broken windows, exposed wiring, plumbing issues, roof problems, and safety hazards. Issues found typically must be fixed before closing.

Step 6: Underwriting and closing.

An underwriter reviews the full file. Conditions come back, you provide what’s asked. Once clear, you receive the Closing Disclosure at least 3 business days before closing. At closing, you sign at the title company, funds wire, deed records, and you get the keys.

How long does an FHA loan take to close?

30-45 days from contract to closing on a purchase. FHA appraisals can take longer than conventional in some markets due to MPR requirements. FHA Streamline Refinances are faster — often 21-30 days because they skip the appraisal and income verification.

What if I have trouble making payments?

Call the servicer immediately. FHA loans have specific loss mitigation programs including FHA-HAMP modifications, forbearance, partial claims, and other options designed to keep borrowers in their homes. A HUD-approved housing counselor can walk you through your options.

No SSN required. Takes about 2 minutes.

About this guide: Written by J.D. Peck, NMLS #314883, Area Manager and Mortgage Loan Originator at Paramount Residential Mortgage Group (PRMG), NMLS #75243. 25+ years of mortgage lending experience, 3,100+ loans closed, Scotsman Guide Top Originator 2026. FHA specialties: manual underwriting for non-traditional credit, 500-580 credit recovery, 2-4 unit owner-occupied purchases, and self-employed borrowers using FHA full-doc qualifying. Every answer above is built from current HUD FHA guidelines (4000.1 handbook) and the 2026 FHA loan limits published by HUD. Guidelines, fees, and limits are subject to change. Lending in 49 states. New York excluded. Last updated June 6, 2026.

No SSN required. Takes about 2 minutes.