The Federal Housing Administration is a government insurance program, not a lender

The Federal Housing Administration (FHA) does not lend money or run housing authorities. It insures mortgages made by banks and other lenders, which means it promises to cover the lender's loss if you stop paying. This insurance lets lenders offer mortgages to buyers who might not may have access to for conventional loans — people with lower credit scores, smaller down payments, or less stable income histories.

Because FHA insurance reduces the lender's risk, you can borrow with a down payment as low as 3.5 percent instead of the 10 to 20 percent many conventional loans require. The trade-off is that you pay an insurance premium on top of your regular mortgage payment, and that premium stays for the life of the loan in most cases.

FHA is part of the Department of Housing and Urban Development (HUD), a federal agency. It does not run local housing authorities — those are separate city or county agencies that manage public housing and rental information programs.

Key Takeaways

  • FHA insures mortgages rather than lending money itself; the actual loan comes from a bank or mortgage company.
  • FHA loans allow down payments as low as 3.5 percent and accept lower credit scores than conventional mortgages.
  • You pay mortgage insurance premiums (an upfront fee and a monthly charge) as part of the cost of borrowing with FHA insurance.
  • FHA sets rules about the property itself — it must meet safety and livability standards — not just rules about the borrower.
  • FHA loans are available through any lender that is FHA-approved; you do not explore directly to FHA.

How FHA insurance works in a mortgage transaction

When you get an FHA loan, three parties are involved: you (the borrower), the lender (usually a bank or mortgage company), and FHA (the insurer). The lender approves you, funds the loan, and collects your monthly payment. FHA never touches your money — it only steps in if you default.

If you stop paying and the lender forecloses and sells the house at a loss, FHA reimburses the lender for that loss. This insurance is what makes lenders willing to accept a 3.5 percent down payment or a credit score below 620, because their downside is capped.

You pay for this insurance in two ways: an upfront mortgage insurance premium (UFMIP), usually 1.75 percent of the loan amount, and an annual mortgage insurance premium (MIP) added to your monthly payment. The annual premium ranges from roughly 0.55 to 0.80 percent of the loan balance per year, depending on your down payment and loan term. Unlike some conventional loans, FHA mortgage insurance typically does not go away — you pay it for the full 30 years unless you refinance into a non-FHA loan.

FHA loan limits and property requirements

FHA sets a maximum loan amount that varies by county. In 2024, limits range from around $472,000 in lower-cost areas to over $1 million in high-cost urban areas. You can find your county's limit on the HUD website. This is not a cap on what you can spend — you can buy a more expensive house if you put down more than 3.5 percent — but FHA will only insure up to the limit.

FHA also requires the property to meet minimum standards for safety, soundness, and livability. The house must have a functioning roof, safe electrical and plumbing systems, no lead paint hazards (in homes built before 1978), and no major structural damage. An FHA appraiser inspects the property and can require repairs before the loan closes. This protects you from buying a house with hidden problems, but it also means some older or heavily damaged properties will not may have access to.

Who can get an FHA loan and what lenders look for

FHA loans are open to U.S. citizens and permanent residents with a valid Social Security number. There is no income limit, but the lender will verify your income and check your debt-to-income ratio — typically, your total monthly debt payments (including the new mortgage) cannot exceed 43 to 50 percent of your gross monthly income, depending on the lender.

Credit score requirements vary by lender. FHA itself does not set a minimum, but most lenders require a score of 580 to 620 to approve you for the full 3.5 percent down payment. Scores below 580 may still may have access to with a larger down payment (usually 10 percent). Lenders also review your payment history, recent late payments, and any bankruptcies or foreclosures.

You must have a steady employment history and be able to document your income through pay stubs, tax returns, or bank statements. Self-employed borrowers need two years of tax returns. The lender will also pull your credit report and verify your bank accounts to confirm you have the cash for the down payment and closing costs.

Down payment, closing costs, and what you actually need to bring

The minimum down payment for an FHA loan is 3.5 percent of the purchase price. On a $300,000 house, that is $10,500. You also need to cover closing costs — typically 2 to 5 percent of the loan amount — which include the appraisal, title search, title insurance, attorney fees, and lender fees. Closing costs are not part of the down payment; you need cash for both.

Some sellers will pay part or all of your closing costs as a negotiating point, which reduces the cash you need to bring. FHA allows sellers to contribute up to 6 percent of the purchase price toward your closing costs and prepaid expenses. If the seller contributes more than that, the excess reduces your down payment.

You do not need to have perfect credit or a large savings account. Lenders want to see that you have the cash on hand and that it came from a legitimate source (your bank account, a gift from a family member, or a down payment information program). Large deposits that appear shortly before closing will raise questions, so lenders typically ask for a two-month bank statement history.

FHA loans versus conventional mortgages

The main advantage of an FHA loan is the low down payment and more flexible credit requirements. If you have a credit score below 620 or cannot save 10 to 20 percent for a down payment, FHA may be your only option. The insurance premium is the cost of that flexibility.

Conventional loans typically require a 10 to 20 percent down payment and a credit score of 620 or higher. If you put down less than 20 percent on a conventional loan, you also pay private mortgage insurance (PMI), which is similar to FHA insurance but usually costs less per month. Conventional PMI can be removed once you have paid down the loan to 80 percent of the home's value, whereas FHA insurance is permanent.

If you have a strong credit score and can save for a larger down payment, a conventional loan may cost less over time. If you are a first-time buyer with limited savings or credit challenges, FHA is often the more practical choice. Some lenders offer both options and can show you the total cost of each.

The FHA process process and timeline

You do not explore to FHA directly. Instead, you find an FHA-approved lender (your bank, a mortgage broker, or an online lender) and explore for an FHA loan through them. The lender handles all communication with FHA and submits your loan for FHA insurance approval.

The process typically takes 30 to 45 days from process to closing. You will need to provide pay stubs, tax returns, bank statements, employment verification, and authorization for the lender to pull your credit report and order an appraisal. The lender will also order a title search to confirm the seller owns the property free and clear (or that any existing liens will be paid off at closing).

Once the appraisal comes back and FHA approves the loan, you move to the final underwriting stage, where the lender reviews all your documents one more time. Then you schedule a closing appointment, sign the final paperwork, and transfer the funds. The lender funds the loan and records the mortgage with the county.

Common reasons FHA loans are denied or delayed

FHA loans are denied most often because the property does not meet FHA standards. If the appraisal reveals a roof that needs replacement, foundation cracks, or other major repairs, the seller must fix those issues before closing, or the deal falls through. Some older homes or properties in poor condition straightforward will not may have access to.

Borrower-related denials usually stem from a debt-to-income ratio that is too high, recent late payments or collections accounts, or insufficient cash reserves. If you have paid off a major debt just before explore, the lender may ask you to wait a few months so the account shows a longer history of on-time payments. Unexplained large deposits or transfers between accounts can also trigger delays while the lender verifies the source of the funds.

Delays are common when documents are missing or incomplete. Provide everything the lender asks for the first time, and respond quickly to requests for additional information. The faster you return documents, the faster the loan moves through underwriting.

Frequently Asked Questions

Can I use an FHA loan to buy a second home or investment property?

No. FHA loans are only for primary residences — the house you will live in as your main home. You cannot use an FHA loan to buy a vacation home, rental property, or investment property. If you already own a home and want to buy another, you will need a conventional loan.

What happens if I refinance an FHA loan into a conventional mortgage?

When you refinance into a conventional loan, the FHA insurance ends and you are no longer obligated to pay the mortgage insurance premium. This can lower your monthly payment if conventional rates are favorable and your credit score or home equity has improved. You will pay new closing costs for the refinance, so the savings need to outweigh those upfront fees.

Do I need to take a homebuyer education course to get an FHA loan?

Most lenders require it, though some may waive it if you have owned a home before. The course is usually online, takes a few hours, and covers budgeting, the mortgage process, and home maintenance. Your lender will tell you whether it is required and where to take it.

Can I get an FHA loan if I have had a foreclosure or bankruptcy?

Yes, but there are waiting periods. After a foreclosure, you typically must wait three years before FHA will insure a new loan. After a Chapter 7 bankruptcy, the wait is two years; after Chapter 13, you may be able to borrow while the plan is still active if you have made all payments on time. Your lender will review your specific situation.

What is the difference between FHA and a housing authority?

FHA insures mortgages for homebuyers. Housing authorities are local agencies that manage public housing units and rental information programs for low-income renters. They are separate organizations with different purposes. Some people use both — for example, renting public housing while saving to buy a home with an FHA loan.