How to Get a HUD Loan: Requirements, Costs, and Application

To get a HUD loan — an FHA-insured mortgage — you apply through a private lender approved by the Federal Housing Administration, meet the program’s credit, debt, residency, and property rules, and pay a mortgage insurance premium in exchange for the low down payment the program allows. HUD itself does not lend money. It insures loans made by banks, credit unions, and mortgage companies, which is why those lenders can accept as little as 3.5 percent down and more flexible credit than a conventional loan requires.¹

Who Qualifies

Your credit score sets the down payment. A score of 580 or higher qualifies you for the 3.5 percent minimum. A score between 500 and 579 requires 10 percent down. Below 500, you are not eligible for FHA insurance at all.² Individual lenders often set their own floors above the FHA minimum, so quotes will differ.

Debt-to-income ratio matters just as much. FHA’s standard limits are 31 percent for housing costs and 43 percent for total monthly debt.² Lenders can go higher when there are compensating factors: a bigger down payment, meaningful cash reserves, or a history of handling a similar housing payment.

Student loans get special treatment. If yours are in deferment or forbearance and show a zero payment on your credit report, the lender counts 0.5 percent of the outstanding balance as your monthly payment for DTI purposes. If a payment above zero is reported, the lender uses that figure.³ With large balances, this can quietly shrink how much house you qualify for.

You need a two-year employment history. Gaps are not automatic disqualifiers when you can document the reason: medical leave, schooling, or a career change. Lenders verify employment directly and pull IRS tax transcripts to compare against the returns you submit.

Residency rules tightened in 2025. FHA financing is now available only to U.S. citizens, lawful permanent residents, and citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau. Non-permanent residents are no longer eligible. Permanent residents must provide evidence of lawful status from USCIS, and every applicant needs a Social Security number — though a Social Security card by itself does not prove immigration or work status.⁴

How Much You’ll Need Up Front

The 3.5 percent minimum is among the lowest of any mortgage program, and the money does not have to be yours. FHA allows the entire down payment to come from a gift, provided the source is acceptable:

Family members — parents, siblings, grandparents, or other relatives
Employers or labor unions
Close friends with a clearly documented relationship to you
Charitable organizations
Government agencies or public programs offering homeownership assistance

Anyone with a financial interest in the sale is off-limits as a donor. That rules out the seller, real estate agents, the loan officer, and builders.⁵

The donor signs a gift letter with their name, address, phone number, the exact amount, their relationship to you, and a statement that no repayment is expected.⁵ The lender then verifies the donor could actually spare the money by reviewing bank statements showing the transfer.

How much you can borrow is capped by county. For 2026, the national floor on a single-family home is $541,287, and the ceiling in high-cost counties reaches $1,249,125.⁶ The exact number for your county is on HUD’s website; limits are higher for two- to four-unit buildings if you buy the whole building and live in one unit.⁷

The Cost of the Government Guarantee

Every FHA loan carries mortgage insurance. There are two pieces: an upfront premium at closing and an annual premium built into your monthly payment.

The upfront premium is 1.75 percent of the base loan amount.⁸ On a $300,000 loan, that is $5,250. Most borrowers roll it into the loan balance rather than bringing cash to closing.

The annual premium is divided into 12 monthly installments. The rate depends on the loan term, loan size, and loan-to-value ratio. For the common first-time-buyer setup — a 30-year loan at or below $726,200 with more than 95 percent financing — the annual rate is 0.55 percent. Shorter terms and lower LTV can bring it down to 0.15 percent.

The catch is how long you pay it. For FHA case numbers assigned on or after June 3, 2013:

If you put down less than 10 percent, you pay annual mortgage insurance for the life of the loan, or 30 years, whichever comes first.
If you put down 10 percent or more, annual mortgage insurance drops off after 11 years.⁹

Because most FHA borrowers put down less than 10 percent, that first bullet is the one to plan around. You cannot cancel the insurance by building equity; the only way off is to refinance into a conventional loan once you have enough equity to qualify. This is the single biggest long-term cost difference between FHA and conventional financing.

The Property Has to Pass Inspection

The home must be your primary residence. You have to move in within 60 days of closing and live there for at least a year. Investment properties and vacation homes are not eligible.

An FHA-approved appraiser evaluates the home against HUD’s Minimum Property Standards, which require a safe, sound, and habitable dwelling.¹⁰ The appraiser checks the foundation and roof, confirms heating, plumbing, and electrical systems work, and looks for hazards to the occupants. Operational windows and proper drainage away from the structure get reviewed too.

For homes built before 1978, the appraiser inspects every painted surface for chipping, peeling, or flaking paint. Any deteriorated paint has to be tested for lead and remediated before the loan can close.¹¹

If the home fails, the seller must complete repairs before the loan can proceed to final approval. Expect the FHA appraisal itself to run between $400 and $800 depending on the property.

Documents to Gather Before You Apply

Pulling paperwork together before you contact a lender saves weeks. You will need:

Federal tax returns (Form 1040) for the most recent two years, with all schedules¹²
W-2 statements from each employer for the same two years
Pay stubs covering the last 30 days
Bank statements for the previous two months, showing the source of your down payment and reserves
Proof of U.S. citizenship or lawful permanent resident status from USCIS

Self-employed applicants also need a signed year-to-date profit-and-loss statement and three recent months of business bank statements.¹²

The application itself is the Uniform Residential Loan Application, Form 1003.¹³ It asks for a full financial picture: all assets including savings and retirement accounts, all debts, monthly expenses, and every address you have lived at for the past two years. Answer accurately. Misrepresentations on a mortgage application can be prosecuted as federal fraud.

Applying Through an FHA-Approved Lender

Start by finding a lender authorized to issue FHA loans. HUD publishes a searchable list you can filter by area.¹⁴ Get quotes from more than one; interest rates, origination fees, and turnaround times vary. Origination fees typically run 0.5 to 1 percent of the loan amount.

Once you pick a lender and submit your application, the lender requests an FHA case number from HUD to track the file, then orders the FHA-specific appraisal.¹⁵ An underwriter reviews everything: employment verification, IRS transcripts against your tax returns, and the source of every large deposit in your accounts.

You can also negotiate for the seller to cover closing costs. FHA allows seller concessions of up to 6 percent of the sales price or appraised value, whichever is lower.¹⁶ The seller can pay origination fees, the appraisal, title fees, and other closing expenses. Anything over 6 percent gets subtracted from the sale price before your loan amount is calculated.

Total closing costs on an FHA loan usually land between 2 and 6 percent of the loan amount, most often in the 3 to 4 percent range. That figure includes the upfront mortgage insurance premium, the appraisal, title insurance, lender fees, and prepaid property taxes and homeowner’s insurance.

When the underwriter issues clear-to-close, you sign the promissory note and mortgage or deed of trust at closing. The lender remits the upfront premium to HUD, and the government insurance attaches to the loan.

Related FHA Programs Worth Knowing

The standard purchase mortgage is one of several FHA programs. If your situation fits a specialized program, it may be a better door.

203(k) Rehabilitation Loans

A 203(k) rolls the purchase price and renovation costs into a single mortgage, which is useful for a fixer-upper that would not pass the standard FHA appraisal in its current shape. Standard 203(k) covers major renovations starting at $5,000 in repairs, with no upper repair cap so long as the total loan stays within your county’s FHA limit. Limited 203(k) handles smaller projects up to $75,000, such as roofing, kitchen or bath updates, appliances, or accessibility work.¹⁷ Eligible properties include one- to four-unit homes, townhomes, eligible condos, and manufactured homes titled as real estate, and the home must be at least a year old.¹⁸

Streamline Refinance

If you already have an FHA loan, the Streamline Refinance lets you refinance with limited paperwork and typically no new appraisal. Your current mortgage must be FHA-insured and current on payments, the refinance must produce a net tangible benefit such as a lower rate or shorter term, and you cannot pull out more than $500 in cash.¹⁹

Home Equity Conversion Mortgage

The HECM is HUD’s reverse mortgage, available to homeowners age 62 or older using the property as their primary residence.²⁰ Instead of making payments, you receive payments or a line of credit against your equity. The balance is repaid when you sell, move out, or die. HUD requires counseling with an approved housing counselor before closing.

Good Neighbor Next Door

This program gives 50 percent off the list price on HUD-owned homes in designated revitalization areas. It is open only to full-time law enforcement officers, pre-K through 12th-grade teachers, firefighters, and emergency medical technicians, and buyers must live in the home as a primary residence for at least 36 months.²¹

1
U.S. Department of Housing and Urban Development (HUD). Federal Housing Administration History
2
U.S. Department of Housing and Urban Development (HUD). HUD Handbook 4000.1
3
U.S. Department of Housing and Urban Development (HUD). Mortgagee Letter 2021-13
4
U.S. Department of Housing and Urban Development (HUD). Revisions to Residency Requirements
5
U.S. Department of Housing and Urban Development (HUD). Acceptable Sources of Borrower Funds
6
U.S. Department of Housing and Urban Development (HUD). FHA Lenders Single Family
7
Consumer Financial Protection Bureau. What Are the FHA Loan Limits for My County
8
U.S. Department of Housing and Urban Development (HUD). FHA Mortgage Insurance Premium Structure for Forward Mortgage Loans
9
U.S. Department of Housing and Urban Development (HUD). Mortgagee Letter 2013-04
10
eCFR. 24 CFR Part 200 Subpart S – Minimum Property Standards
11
U.S. Department of Housing and Urban Development (HUD). Lead-Based Paint Inspection Guidelines
12
U.S. Department of Housing and Urban Development (HUD). Mortgagee Letter 2022-09
13
Fannie Mae. Uniform Residential Loan Application (Form 1003)
14
U.S. Department of Housing and Urban Development (HUD). HUD Lender List
15
FHA Connection. Processing a Mortgage for FHA Insurance
16
U.S. Department of Housing and Urban Development (HUD). Seller Concessions and Verification of Sales
17
U.S. Department of Housing and Urban Development (HUD). 203(k) Rehabilitation Mortgage Insurance Program Types
18
U.S. Department of Housing and Urban Development (HUD). 203(k) Rehabilitation Mortgage Insurance Program
19
U.S. Department of Housing and Urban Development (HUD). Streamline Refinance Your Mortgage
20
Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan
21
U.S. Department of Housing and Urban Development (HUD). HUD Good Neighbor Next Door Program