What Is an FHA Loan and Who Qualifies?

Before you explore how to get an FHA loan, take a closer look at how these loans work.

FHA loan explained

An FHA loan is a government-backed mortgage insured by the Department of Housing and Urban Development (HUD) through the FHA. These loans are designed to help more people become homeowners, particularly first-time homebuyers, those with lower credit scores and buyers with limited savings.

The government doesn’t issue the loan itself. Instead, you’ll need to work with an FHA-approved lender. But the FHA insures your loan, which reduces the lender’s risk and allows it to offer more flexible FHA loan criteria.

There are a few other programs associated with the FHA, such as the FHA Energy Efficient Mortgage (EEM), which allows you to finance energy-saving home improvements like solar panels. The idea is that reducing your utility expenses may make it easier to make monthly payments on mortgage loans.

An FHA streamline refinance is another great offering. If mortgage interest rates improve and you reach a higher FHA loan credit score threshold, you can use this refinance option to lower your monthly payments a few years after your initial purchase.

FHA vs. conventional loans

Plenty of buyers choose conventional loans to purchase their homes. Here are the basic requirements:

• Minimum credit score: Typically 620 or higher
• Down payment: 3% to 20%, depending on the lender and your credit score
• Mortgage insurance: Mortgage insurance required if your down payment is under 20% (cancelable when your equity reaches 80%)
• Property type: Used for buying a second home, investment property or primary residence

The requirements are different for FHA loans:

• Minimum credit score: 580 (or 500 with a 10% down payment)
• Down payment: As low as 3.5%
• Mortgage insurance: Mortgage insurance required for the life of the loan if you put down less than 10%.
• Property type: Must be a primary residence

FHA mortgage insurance is called a Mortgage Insurance Premium (MIP), and it is required regardless of how much money you put down. Unlike private mortgage insurance for conventional mortgages, MIP usually cannot be canceled.

While MIP adds to your monthly payment, the tradeoff is more flexible loan approval terms and wider access to homeownership. The lower FHA loan down payment and laxer credit-related FHA loan qualifications make it a great option to consider.

Interest rates are similar between a conventional loan and an FHA loan, meaning that if you have an excellent credit score and can afford more money down, your monthly payment may be lower with a conventional loan. Still, FHA loan first-time homebuyer rates and terms are extremely competitive, and it’s a good idea to explore both options.

HUD determines what an FHA loan requires and adjusts these criteria each calendar year. Here are the latest requirements, including the maximum loan amount:

• Credit score: 580 or higher for 3.5% down; scores between 500 and 579 require a minimum down payment of 10%
• Down payment: 5% of the purchase price
• Debt-to-income ratio: Under 43%, with exceptions if you have a strong credit score or put more money down
• Residence requirement: Must be a primary residence, not a second home or investment property
• FHA loan limits 2025: $524,225 in most parts of the United States
• Steady income: Generally, work history with the same employer or in the same field for at least two years

Your lender will also require an FHA-approved appraisal and a review of the home’s condition, which includes a four-point inspection. The goal is to ensure the property meets basic safety and livability standards.

If you’re wondering how to get an FHA loan, you’re in luck. When you choose the right lender, the process is straightforward. Here’s a step-by-step look:

• Check your FHA loan qualifications: Find out your credit score and calculate your debt-to-income ratio to see where you stand
• Use an FHA loan calculator: Estimate your potential monthly mortgage payments, including taxes, insurance and MIP
• Get pre-approved: This gives you a price range so that you can start your search
• Find the right home: Make an offer on a home within your price range
• Apply for an FHA loan: If your offer is accepted, submit your application through an FHA-approved lender
• Complete an appraisal and underwriting: FHA loans require a special appraisal and extensive underwriting
• Close on your new home: Once approved, you’ll sign your paperwork and pay closing costs

Choosing the right lender during the pre-approval process is crucial. The best FHA-approved lenders stay in contact at every step and help you prepare for potential setbacks.

An FHA loan can be a great choice if:

• You’re a first-time homebuyer
• Your credit score is below 640
• You don’t have a large down payment saved
• You plan to live in the home as your primary residence
• You want more flexibility than conventional loans offer

While an FHA loan isn’t right for everyone, it’s definitely something to consider. If you qualify, you can put less money down and keep more cash in your pocket as you embark on the adventure of homeownership.

_{CrossCountry Mortgage, LLC is an FHA Approved Lending Institution and is not acting on behalf of or at the direction of HUD/FHA or the Federal government.}