HUD Handbook 4000.1: FHA Single Family Housing Policy Handbook

HUD Handbook 4000.1 is the Federal Housing Administration’s single consolidated rulebook for every FHA-insured single-family mortgage in the United States. It governs how a lender becomes FHA-approved, how a loan is originated and endorsed for insurance, how the mortgage is serviced, and how quality control is maintained across the entire program.¹ HUD built it by folding thousands of pages of older handbooks and scattered policy notices into one digital resource, and it updates that resource regularly through numbered Mortgagee Letters.

What the Handbook Covers and Who It Binds

The handbook follows an FHA loan from cradle to grave. Its scope covers traditional Title II forward mortgages, Home Equity Conversion Mortgages (the FHA reverse mortgage program), and Title I loans for manufactured housing and property improvements.¹

Its rules bind every participant in the FHA ecosystem: lenders, mortgage brokers, third-party originators, appraisers, and servicers. The instructions are mandatory, not advisory. A lender that consistently ignores them risks losing its FHA approval entirely, cutting off its ability to participate in any government-insured lending program.

HUD publishes the full text as a downloadable PDF through its HUDCLIPS handbooks portal, and individual sections are accessible on HUD’s single-family handbook page. Policy changes arrive as numbered Mortgagee Letters that amend specific sections and are eventually folded into the consolidated text. If you are checking a rule, look for the most recent Mortgagee Letter on that topic before relying on the handbook body alone.

Borrower Eligibility Under 4000.1

Credit Score

FHA uses the borrower’s Minimum Decision Credit Score. A score below 500 is ineligible. Scores between 500 and 579 cap the loan at 90 percent of value, so the borrower needs at least 10 percent down. A score of 580 or above qualifies for maximum financing at 96.5 percent of value, the familiar 3.5 percent down payment.²

Citizenship and Residency

For FHA case numbers assigned on or after May 25, 2025, non-permanent resident aliens are no longer eligible for FHA-insured mortgages. Eligibility is limited to U.S. citizens, lawful permanent residents who can document their status through USCIS, and citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau.³ A Social Security card alone does not prove immigration or work status.

Occupancy and Federal Debt

FHA loans are for primary residences. The borrower must intend to occupy the property as a principal residence and move in within 60 days of closing. Investment properties and vacation homes do not qualify.

Before approving a loan, the lender runs the borrower through the Credit Alert Verification Reporting System (CAIVRS) to check for delinquent federal debt. A borrower who is currently delinquent on any federal obligation, or who had an FHA insurance claim paid within the previous three years, is ineligible.⁴ Defaulted student loans, SBA loans, VA loans, and previous FHA mortgages all surface here.

Waiting Periods After Bankruptcy or Foreclosure

Chapter 7 bankruptcy carries a two-year waiting period from the discharge date. A foreclosure or deed-in-lieu triggers three years from the date the borrower lost title. Chapter 13 has a shorter path: eligibility can begin after 12 months of on-time payments under the repayment plan, with court approval.

Shorter waiting periods are available when the borrower can document that the event resulted from an economic circumstance beyond their control, such as job loss or serious medical emergency. Under those conditions, the waiting period can drop to as little as 12 months, provided the borrower has re-established satisfactory credit and can show the event was a one-time occurrence.⁵

Debt-to-Income Ratios

The benchmark ratios are 31 percent for housing expense (mortgage payment, taxes, insurance, and any HOA fees divided by gross monthly income) and 43 percent for total debt (all recurring monthly obligations plus housing divided by gross income). Exceeding either does not automatically disqualify the borrower, but the lender must document significant compensating factors.⁶ Substantial cash reserves, minimal payment shock compared to current housing costs, or strong residual income all count.

Down Payment and Gift Funds

The minimum required investment is 3.5 percent of the property’s adjusted value.⁷ Unlike most mortgage programs, FHA allows the entire down payment to come from a gift. The gift letter must name the donor, provide the donor’s address and phone number, state the donor’s relationship to the borrower, list the exact dollar amount, and confirm that no repayment is expected.⁸

Acceptable donors include parents, grandparents, siblings, aunts, uncles, in-laws, spouses, and domestic partners. Gifts of equity on family sales are permitted under the same rules. The lender must document the paper trail from the donor’s account to the borrower’s account or to closing.

Cash-Out Refinances

Cash-out refinances are tighter than purchases. The maximum loan-to-value ratio is 80 percent of appraised value, so at least 20 percent equity must remain after the refinance. The borrower must have owned and occupied the property as a principal residence for at least 12 months before applying.

Property and Appraisal Requirements

Minimum Property Requirements and Standards

FHA appraisals do double duty. They establish market value and confirm the property is safe, structurally sound, and secure. Appraisers evaluate the home against the Minimum Property Requirements, which focus on health and safety, and the Minimum Property Standards, which address durability. If a property fails either set, the loan cannot be insured until the deficiencies are corrected.

The checklist is broad. Roof coverings must have at least two years of remaining useful life. Heating systems must work and maintain adequate temperature. Crawl spaces and attics require visual inspection for structural problems. The property must have adequate access to clean water and a functioning sewage system. Hazards like soil contamination, high-voltage power lines nearby, or excessive airport noise must be documented and may require mitigation before closing.

Lead-Based Paint in Pre-1978 Homes

Any home built before 1978 triggers a mandatory lead-based paint evaluation. If the appraiser identifies deteriorating paint, the seller must stabilize it before closing. Stabilization means repairing the underlying surface defect, removing loose paint using approved wet methods (dry sanding and dry scraping are prohibited except in very limited circumstances), and applying a new protective coating.⁹

After stabilization, a certified risk assessor or lead-based paint inspector performs a clearance exam that includes a visual assessment and dust wipe sampling. Dust samples must fall below specific thresholds: 40 micrograms per square foot for floors, 250 for interior window sills, and 400 for window troughs.⁹ Failed samples require re-cleaning and retesting until they pass. Older-home deals can stall here, so factor potential remediation time and cost into your closing schedule.

Well and Septic Distances

Properties with private wells face separation requirements. The well must sit at least 100 feet from any septic tank drain field, though FHA will accept state or local standards that allow no less than 75 feet. It must also sit at least 10 feet from the property line of any non-residential property and 10 feet from any roadway.¹⁰ Where state or local rules require greater distances, the stricter standard applies.

Mortgage Insurance Premiums

Every FHA loan carries two insurance premiums: an upfront premium collected at closing and an annual premium paid monthly. This is one of the biggest cost differences between FHA and conventional financing.

The upfront mortgage insurance premium is 1.75 percent of the base loan amount.¹¹ On a $300,000 loan, that is $5,250 due at closing, though most borrowers finance it into the loan balance.

The annual premium varies with the loan term, loan-to-value ratio, and base loan amount. Loans of 15 years or less carry lower annual premiums than a 30-year mortgage, and larger down payments pay less. Borrowers who put down more than 10 percent can drop the annual premium after 11 years; everyone else pays it for the life of the loan.¹¹

Loan Servicing and Loss Mitigation

After closing, the servicer collects payments and manages escrow accounts for taxes and insurance. When a borrower misses a payment, the handbook mandates specific outreach timelines before the delinquency escalates.

The handbook requires servicers to work through a structured sequence of loss mitigation options before pursuing foreclosure. Skipping loss mitigation carries a penalty equal to three times the insurance benefits the servicer later claims on that loan.¹²

The primary home retention tool is the standalone partial claim. HUD pays the borrower’s past-due amount and places an interest-free subordinate lien on the property. The lien requires no monthly payments and is not due until the last mortgage payment is made, the property is sold, the mortgage is assumed, the title transfers, or the borrower completes certain refinances.¹³ For deeper hardship, formal loan modifications can cut the interest rate, extend the term, or both. FHA now permits modifications extending the mortgage to 40 years (480 months) to reduce monthly payments to a sustainable level.¹⁴

Lender Requirements and Enforcement

Every FHA-approved lender must maintain an active quality control plan. Lenders originating 3,500 or fewer FHA loans a year must review at least 10 percent of them; larger lenders may use a statistical sampling method meeting HUD’s precision standards.¹⁵ Material noncompliance or signs of fraud must be reported to HUD within 30 days of discovery.

Supervised, nonsupervised, and investing mortgagees must maintain a minimum adjusted net worth of $1,000,000 plus 1 percent of total FHA single-family volume exceeding $25,000,000 from the prior fiscal year, capped at $2,500,000. At least 20 percent of the required adjusted net worth must be held in liquid assets.¹⁶

HUD’s Mortgagee Review Board disciplines lenders that violate handbook requirements. Civil money penalties reach $12,567 per violation, with a cap of $2,513,215 for all violations in any one-year period. Each loan with a violation counts separately.¹² The Board can also suspend or permanently withdraw a lender’s FHA approval. Deliberate fraud can bring criminal prosecution and permanent debarment from federal programs.

FHA Loan Limits for 2026

Loan limits are recalculated each year based on national home prices and are set as a percentage of the conforming loan limit established by the Federal Housing Finance Agency. For 2026, the national floor for a one-unit property in a low-cost area is $541,287, and the ceiling in high-cost areas reaches $1,249,125.¹⁷ The floor is 65 percent of the national conforming limit of $832,750; the ceiling is 150 percent. Two-, three-, and four-unit properties carry higher limits, and Alaska, Hawaii, Guam, and the U.S. Virgin Islands have adjusted ceilings above the standard high-cost amount. Look up your county on HUD’s loan limit lookup tool for the exact figure that applies to your purchase.

1
U.S. Department of Housing and Urban Development. Single Family Housing Policy Handbook 4000.1
2
U.S. Department of Housing and Urban Development. Does FHA Require a Minimum Credit Score and How Is It Determined
3
U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-09
4
U.S. Department of Housing and Urban Development (HUD) Archives. HOC Reference Guide – CAIVRS Credit Alert Verification and Reporting System
5
U.S. Department of Housing and Urban Development. Mortgagee Letter 2013-26
6
U.S. Department of Housing and Urban Development. HUD 4155.1 – Chapter 4, Section F: Borrower Qualifying Ratios
7
U.S. Department of Housing and Urban Development. What Is the Minimum Down Payment Requirement for FHA
8
U.S. Department of Housing and Urban Development. Does HUD Allow Gifts of Equity
9
U.S. Department of Housing and Urban Development. Lead Safe Housing Rule – 24 CFR 35
10
U.S. Department of Housing and Urban Development. Mortgagee Letter 2002-25 – Minimum Distance Requirements Between Private Wells and Sources of Pollution
11
U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-01 – Annual Mortgage Insurance Premiums
12
eCFR. 24 CFR Part 30 – Civil Money Penalties: Certain Prohibited Conduct
13
U.S. Department of Housing and Urban Development. FHA Loss Mitigation Program
14
Federal Register. Increased Forty-Year Term for Loan Modifications
15
U.S. Department of Housing and Urban Development. Chapter 7 Quality Control Plan
16
U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
17
U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-23 – 2026 Nationwide Forward Mortgage Loan Limits