What Is an FHA Loan? Credit, Down Payment, and Eligibility

To qualify for an FHA loan, you need a credit score of at least 500, a down payment of 3.5% or 10% depending on that score, a two-year employment history, debt ratios generally within FHA’s 31/43 benchmarks, and U.S. citizenship or lawful permanent residency. The home must be your primary residence and pass an FHA appraisal. FHA loan requirements are set by the Federal Housing Administration through HUD Handbook 4000.1, but the loans themselves come from private FHA-approved lenders who insure against default through the FHA program. That insurance is why lenders will approve borrowers who would not clear conventional underwriting, and it is also why every FHA borrower pays mortgage insurance premiums on top of principal and interest.

Credit Score and Down Payment

Two numbers decide the door you walk through. FHA sets its minimums in tiers tied to loan-to-value:

580 or higher. You qualify for maximum financing with 3.5% down. On a $350,000 home, that is $12,250 upfront.
500 to 579. You need at least 10% down. On the same home, $35,000.
Below 500. You are not eligible until your score improves.

Those are FHA’s floors. Individual lenders often add their own “overlays,” requiring a 620 minimum even where FHA itself would accept 580. Shopping several FHA-approved lenders is worth the time for this reason alone.

Where the Down Payment Can Come From

Your minimum cash investment can come from personal savings or from gift funds. FHA accepts gifts from a broader list of donors than most buyers expect: relatives, employers, labor unions, close friends with a documented relationship to you, charitable organizations, and government homeownership assistance programs. Each gift needs a signed letter listing the donor’s name, address, phone number, relationship to you, the dollar amount, and a statement that no repayment is expected.¹

What gift funds cannot do is replace your side of the deal. Seller concessions and other interested-party contributions cannot count toward your 3.5% or 10% minimum. That money has to come from you or an approved donor.

Income, Employment, and Debt-to-Income

Lenders verify stability over a two-year window. The standard package is W-2s for the past two years and pay stubs covering the most recent 30 days.² Changing jobs does not disqualify you, but the lender wants to see stable or rising income within the same field.

FHA measures affordability with two ratios. The front-end ratio compares your full monthly housing payment (principal, interest, taxes, insurance, and MIP) to gross monthly income, benchmarked at 31%. The back-end ratio adds every recurring monthly debt like car loans, student loans, and credit card minimums, benchmarked at 43%.³

Those benchmarks are softer than they look. When your file runs through FHA’s automated underwriting system (the TOTAL Scorecard) and comes back with an “Accept,” the lender does not need to document compensating factors even if your ratios exceed 31/43.³ Approvals with back-end ratios in the high 40s, and sometimes above 50%, happen for borrowers with otherwise strong profiles.

On manually underwritten files, exceeding the benchmarks requires documented compensating factors. Borrowers at 580 or higher can push to 40/50 by showing verified cash reserves of at least three months of mortgage payments, a minimal jump from their current housing cost, or sufficient residual income after obligations.⁴

Self-employed applicants carry a heavier paperwork load: complete personal federal tax returns for the past two years, business returns for the same period in most cases, and often a year-to-date profit and loss statement if more than a calendar quarter has passed since your last tax year ended.⁵

Citizenship and Residency

U.S. citizens and lawful permanent residents qualify for FHA financing. Green card holders must document their status with evidence from U.S. Citizenship and Immigration Services; a Social Security card alone is not enough.

A major change took effect in 2025. HUD Mortgagee Letter 2025-09 eliminated FHA eligibility for non-permanent resident aliens across all Title II single-family forward and reverse mortgage programs, effective for FHA case numbers assigned on or after May 25, 2025.⁶ Before this rule, non-permanent residents with valid work authorization could qualify. DACA recipients, temporary visa holders, and others without permanent residency are no longer eligible for FHA financing.

Waiting Periods After Bankruptcy, Foreclosure, or Short Sale

A past hardship does not permanently bar you from FHA. Standard waiting periods apply, each measured from a specific date:

Chapter 7 bankruptcy. Two years from the discharge date, not the filing date.
Chapter 13 bankruptcy. You can apply while still in an active repayment plan if at least 12 months of payments have been made on time and the bankruptcy court grants written permission for the new mortgage.⁷
Foreclosure. Three years from the date of the foreclosure sale.
Short sale. Three years from the date of title transfer.

These periods can shrink under HUD’s extenuating circumstances policy. If the hardship followed a loss of income beyond your control that cut household earnings by at least 20% for six months or more, the foreclosure, short sale, or deed-in-lieu waiting period can drop to as little as 12 months. You must show re-established credit and complete housing counseling through a HUD-approved agency.⁸ The Chapter 7 waiting period may also drop to 12 months under similar documented conditions.

Property and Occupancy Rules

FHA financing covers single-family homes, two-to-four-unit properties (where you live in one unit and can rent the others), and condominiums that meet FHA approval. Condos require either project-level or single-unit approval, backed by documentation of the association’s financial health, insurance, and legal standing.⁹

You must move in as your primary residence within 60 days of closing. This is a core program rule, not a guideline, and it rules out FHA financing for investment properties, vacation homes, and fix-and-flip projects. At least one borrower on the loan has to occupy the property. The 60-day window can sometimes be extended when documented repairs delay move-in.

Every FHA purchase loan needs an appraisal by an FHA-approved appraiser, who reviews market value and checks that the home meets minimum property standards for safety, security, and structural soundness. Defective foundations, faulty wiring, lead-based paint in homes built before 1978, and inadequate roofing are common flags. Problems identified during the appraisal typically must be corrected before closing. An FHA appraisal is valid for 180 days and can be extended to one year through a lender-ordered update.¹⁰ One quirk catches buyers off guard: the appraisal attaches to the property’s FHA case number, not to you. If your deal falls through, that appraisal follows the property for the rest of its validity period, and a low number can shadow a seller across multiple FHA offers.

How Much You Can Borrow

FHA does not set one national cap. HUD calculates limits county by county, tied to the conforming loan limit set by the Federal Housing Finance Agency, which is $832,750 for a single unit in 2026.¹¹ The FHA floor sits at 65% of that; the ceiling at 150%.

For 2026, the single-family limits run from a $541,287 low-cost floor to a $1,249,125 high-cost ceiling.¹² Multi-unit properties have higher limits that scale with unit count. Most counties fall between the floor and ceiling, so looking up the exact limit for your county through HUD’s tool belongs early in the search.

Mortgage Insurance Premiums

Every FHA borrower pays two separate insurance charges. This is the program’s main cost trade-off against conventional loans.

The upfront premium is 1.75% of the base loan amount, paid once.¹³ On a $300,000 mortgage, that is $5,250. Most borrowers roll it into the loan balance rather than paying cash at closing, which means paying interest on it over the life of the loan.

The annual premium is charged monthly. For a 30-year loan with 3.5% down at or below a $625,500 base loan amount, the rate is 85 basis points (0.85%) of the outstanding balance. Borrowers putting 5% to 10% down pay 80 basis points. Loans above $625,500 run 100 to 105 basis points depending on LTV.¹³ On a $300,000 loan at 85 basis points, annual MIP costs $2,550, or roughly $213 a month.

How long you pay annual MIP depends on your starting LTV. For loans with case numbers assigned on or after June 3, 2013:

LTV of 90% or less at origination (10%+ down). Annual MIP drops off after 11 years.
LTV above 90% at origination (less than 10% down). Annual MIP runs for the entire loan term, up to 30 years.¹⁴

Since most FHA borrowers put down 3.5%, most are locked into MIP for the life of the loan. The way out is a refinance into a conventional mortgage once equity and credit support it.

Closing Costs and Seller Help

Closing costs typically run 2% to 5% of the purchase price, covering origination fees, title insurance, escrow deposits, and prepaid taxes. FHA lets sellers and other interested parties contribute up to 6% of the sales price toward those costs.¹⁵

The 6% cap covers origination fees, discount points, prepaid items, interest rate buydowns, and the upfront mortgage insurance premium. Contributions from real estate agents, builders, and developers all fall under the same limit. If interested-party contributions exceed 6% or exceed actual costs, HUD reduces the property’s adjusted value dollar-for-dollar, which cuts how much you can borrow.¹⁵

How the Application Moves

FHA loans originate only through FHA-approved lenders, so finding one is step one. The lender then requests an FHA case number, a unique 10-digit identifier assigned through HUD’s system, after certifying that an active loan application exists for you and the property.¹⁶

The lender also runs your information through the Credit Alert Verification Reporting System, a federal database that flags borrowers delinquent on government debts like federal student loans, SBA loans, or prior FHA mortgages.¹⁷ An active CAIVRS hit stops the application until the debt is resolved or a payment plan is in place.

From there the lender orders the appraisal, runs your file through automated underwriting or manual review, and moves toward a clear-to-close. Typical timelines run 30 to 45 days from application, though complicated files or appraisal issues can stretch that.

1
U.S. Department of Housing and Urban Development. HUD 4155.1 Section B – Acceptable Sources of Borrower Funds
2
U.S. Department of Housing and Urban Development. HUD 4155.1 Section B – Documentation Requirements Overview
3
U.S. Department of Housing and Urban Development. HUD 4155.1 Section F – Borrower Qualifying Ratios
4
U.S. Department of Housing and Urban Development. Mortgagee Letter 2014-02 – Manual Underwriting
5
U.S. Department of Housing and Urban Development. Mortgagee Letter 2022-09 – Calculating Effective Income
6
U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-09
7
U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage
8
U.S. Department of Housing and Urban Development. Mortgagee Letter 2013-26 – Back to Work Extenuating Circumstances
9
U.S. Department of Housing and Urban Development. FHA Single-Unit Approval Required Documentation List
10
U.S. Department of Housing and Urban Development. FHA INFO 2022-71 – Revised Appraisal Validity Period Guidance
11
Fannie Mae. Loan Limits
12
U.S. Department of Housing and Urban Development. HUD Federal Housing Administration Announces 2026 Loan Limits
13
U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-01 Appendix 1.0 – Mortgage Insurance Premiums
14
U.S. Department of Housing and Urban Development. Mortgagee Letter 2013-04 – Annual MIP Duration
15
U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
16
U.S. Department of Housing and Urban Development. FHA Connection Guide – Case Number Assignment
17
USDA LINC. Appendix 7 – CAIVRS Access Instructions