FHA loans are insured by the Federal Housing Administration, which lets lenders offer a smaller down payment and more flexible credit guidelines than many conventional loans. They're for homes you'll live in as your primary residence, and the loan amount has to fit within the FHA limit for your county. Every FHA loan carries mortgage insurance, an upfront premium and an annual premium, which is the main tradeoff to weigh against a conventional loan. FHA also offers 203(k) renovation loans, which roll the cost of repairs into one mortgage.
FHA loans have a reputation as the "first-time buyer loan." That's not wrong, but it's not the whole story either. FHA can be the right answer for someone buying their fifth home, for someone rebuilding after a rough stretch, or for someone who wants to buy a fixer and fold the repairs into the loan.
It can also be the wrong answer, when a conventional loan would save real money. Here's how FHA works, what it costs, and how to tell which one fits you.
It may not be the best fit if you have strong credit and 20 percent down, if you're buying a second home or rental, or if your loan amount is above your county's FHA limit.
The Federal Housing Administration, part of HUD, doesn't lend you money. It insures the loan your lender makes. If a borrower stops paying, FHA's insurance covers the lender's loss. That protection is why lenders are willing to lend with a smaller down payment and more flexible credit.
You pay for that insurance through mortgage insurance premiums, which I'll explain in the costs section.
FHA loans come in fixed and adjustable rates, and in 15- and 30-year terms, among others. You can use one to buy a home or to refinance. FHA loans can also be assumed by a qualified buyer with the lender's approval, which can matter if you sell someday.
FHA's minimum down payment and minimum credit score work together. A higher score generally allows the smallest down payment, and a lower score generally needs a bigger one. The exact figures come from HUD and can change, so I'll show you where you stand with your actual score.
Your down payment can come from savings, a gift from family, and some assistance programs, as long as it's documented.
You'll need steady, verifiable income and a total monthly debt load that fits FHA's guidelines. FHA looks at your housing payment and your total debts compared with your income. Self-employed borrowers can qualify too, usually with two years of tax returns.
FHA looks at how you've handled credit, not just your score. Past bankruptcies and foreclosures don't rule you out, but there are waiting periods, and extenuating circumstances can sometimes shorten them.
FHA sets a maximum loan amount for each county, based on local home prices, and updates it every year. The limit is higher for two- to four-unit homes. If the home you want needs a bigger loan than your county allows, we'll look at conventional or jumbo instead. See Conventional Loans and Jumbo Loans.
Every FHA loan has two kinds of mortgage insurance:
How long the annual premium lasts depends on your original down payment. With a smaller down payment, it generally lasts for the life of the loan. With a larger down payment, it generally ends after a set number of years. That's a big difference from conventional private mortgage insurance, which can usually be removed once you build enough equity.
The current premium rates come from HUD, and your Loan Estimate will show exactly what you'd pay.
You'll also have the usual closing costs: lender fees, appraisal, title, escrow, recording, and prepaid items like property taxes and homeowners insurance. FHA allows sellers to contribute toward some of these costs, up to a limit.
You'll get a Loan Estimate within 3 business days of applying, so you can see every cost before you commit.
This is the comparison I run most often. The short answer:
The only way to really know is to price both on the same day with your real numbers. Look at the monthly payment, the upfront costs, and how long the mortgage insurance will last. Sometimes FHA has the lower payment today but costs more over ten years. I'll lay both side by side for you.
If you've found a house with good bones and a dated kitchen, a 203(k) loan can be the answer. It lets you buy (or refinance) a home and finance the cost of repairs in one FHA loan, based on what the home will be worth after the work is done.
We offer both.
The repair money doesn't go to you at closing. It's held in escrow and released in draws as the work is completed and inspected. In June 2026, HUD increased the number of draws allowed on a Limited 203(k) to up to four per contractor.
If you're house hunting and the right home needs work, tell your loan officer early. A 203(k) changes how you write the offer and how long you need to close.
If you already have an FHA loan, you may be able to do an FHA streamline refinance, which generally has less paperwork and may not need a new appraisal. It has to give you a real benefit, like a lower payment. You can also refinance out of FHA into a conventional loan to drop mortgage insurance, once you have enough equity. See Refinance.
FHA sets minimums that work together with your down payment, and lenders can set their own on top. Tell me your score, and I'll tell you where it puts you.
It depends on your credit score. FHA's minimum is among the smaller ones out there, and it can come from a family gift.
Sometimes, depending on your original down payment. Many people drop it by refinancing into a conventional loan once they have enough equity.
Not for a property you won't live in. You can buy a two- to four-unit home with FHA if you live in one of the units. For pure investment property, see Investment Property and DSCR Loans.
It changes every year. Tell me your county, and I'll look it up for you.
Yes, after a waiting period, and sometimes sooner with documented extenuating circumstances.
No. The HECM reverse mortgage is also insured by FHA, but it works very differently and is for homeowners 62 and older. See Reverse Mortgages.
Yes, with an FHA 203(k). See the 203(k) section above.
The fastest way to know if FHA is right for you is to compare it with conventional using your real numbers. Get a rate quote, see your buying power, or call us at 530-888-6000. Buying soon? Start with Buy a Home.
