Loan Programs

FHA Loan Complete Guide

Everything you need to know about FHA loans, from eligibility requirements to closing.

NMHL Team2026-01-1012 min read

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. FHA loans are designed to make homeownership accessible to borrowers who may not qualify for conventional mortgages due to lower credit scores, smaller down payments, or higher debt-to-income ratios. The FHA does not lend money directly; instead, it provides insurance to approved lenders, reducing their risk and allowing them to offer more favorable terms. FHA loans have been helping Americans achieve homeownership since 1934 and remain one of the most popular mortgage options today.

FHA loans account for approximately 12% of all new mortgage originations in the United States, making them one of the most widely used government-backed mortgage programs.

FHA Eligibility Requirements

To qualify for an FHA loan, you must meet several basic requirements. You need a minimum credit score of 580 for the 3.5% down payment option, or 500-579 for the 10% down payment option. Your debt-to-income ratio should generally be below 43%, though some lenders may allow up to 57% with compensating factors. You must have a steady employment history, typically two years with the same employer or in the same field. The property must be your primary residence and meet FHA minimum property standards. You also need to purchase FHA mortgage insurance, which protects the lender in case of default.

Key Tips

  • Even if your credit score is below 580, some lenders will work with you if you have strong compensating factors
  • Self-employed borrowers can qualify with two years of tax returns showing consistent income
  • FHA allows gift funds from family members to cover the entire down payment

FHA Loan Costs and Fees

FHA loans come with two types of mortgage insurance premiums. The upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount, which can be financed into the loan. The annual mortgage insurance premium (MIP) ranges from 0.45% to 1.05% of the loan amount depending on your loan term, loan-to-value ratio, and loan amount. For most borrowers with a 30-year term and less than 10% down, MIP lasts for the life of the loan. FHA closing costs are similar to conventional loans and typically range from 2-5% of the purchase price. However, sellers can contribute up to 6% of the sale price toward your closing costs.

Unlike conventional PMI, FHA mortgage insurance cannot be canceled on most loans originated after June 2013 unless you put 10% or more down, in which case MIP drops off after 11 years.

FHA vs. Conventional Loans

Choosing between FHA and conventional loans depends on your financial profile. FHA loans are generally better for borrowers with credit scores below 680, smaller down payments, or higher debt-to-income ratios. Conventional loans become more attractive for borrowers with credit scores above 700 and the ability to put 10% or more down because private mortgage insurance is typically cheaper and can be canceled at 80% loan-to-value. FHA loans have lower interest rates for lower credit scores but require lifetime mortgage insurance for most borrowers. Consider the total cost over your expected time in the home when comparing these options.

Key Tips

  • Run a side-by-side comparison of total monthly payments including mortgage insurance for both options
  • If you plan to stay less than 7 years, FHA might be cheaper due to lower initial rates
  • If your credit score is above 720, conventional loans almost always cost less over time

The FHA Application Process

Applying for an FHA loan follows a structured process. Start by finding an FHA-approved lender and getting pre-approved. Gather your documentation including pay stubs, W-2s, tax returns, bank statements, and identification. Your lender will pull your credit and verify your employment and income. Once you find a home and have an accepted offer, the lender orders an FHA appraisal to ensure the property meets minimum standards and is worth the purchase price. The underwriter reviews your complete file, and once approved, you proceed to closing where you sign the final documents and receive your keys.

Key Tips

  • Have at least two months of bank statements ready before applying
  • Respond to any lender requests for additional documentation as quickly as possible to avoid delays
  • The FHA appraisal is more thorough than a conventional appraisal and may flag safety or health issues that need repair
Couple holding their new home key

Knowledge Is Your Greatest Asset

Our expert guides help you make informed decisions at every step of your mortgage journey

Get Pre-Approved Today

Get the Free PDF Version

Download a printable PDF with checklists, worksheets, and expert tips you can reference offline — completely free.

Related Guides

First-Time Homebuyer Guide

Complete guide to buying your first home with expert tips.

Credit Score Mortgage Guide

How your credit score affects your mortgage options and rates.

Down Payment Assistance Guide

Programs that can help you cover your down payment.

Trusted by Homeowners Nationwide

Real reviews from Google — see why families trust NMHL

Loading application...

Our Presence

Click on endorsed states to see our direct resources!

National Mortgage Home LoansALARAZCACOFLGAIAIDILINKSKYLAMIMNMTNCNJOHOKPASCSDTNTXWAWIWY

Frequently Asked Questions

The minimum credit score is 580 for 3.5% down payment or 500 for 10% down payment. However, individual lenders may set higher minimums. NMHL works with multiple FHA lenders to find options for a range of credit profiles.

No, FHA loans are only available for primary residences. You must occupy the property within 60 days of closing and live there for at least one year. After that initial year, you may convert the property to a rental and purchase another home.

FHA mortgage insurance includes an upfront premium of 1.75% of the loan amount plus an annual premium of 0.45-1.05% depending on your loan terms. For most 30-year loans with less than 10% down, the annual premium is 0.55% and lasts the life of the loan.

Yes, you can refinance from an FHA loan to a conventional loan once you have at least 20% equity and a qualifying credit score, typically 620 or higher. This eliminates the FHA mortgage insurance premium and can significantly reduce your monthly payment.

Related Resources

First-Time Homebuyer Guide

Complete guide to buying your first home with expert tips.

Credit Score Mortgage Guide

How your credit score affects your mortgage options and rates.

Down Payment Assistance Guide

Programs that can help you cover your down payment.

FHA Loans

Federal Housing Administration (FHA) loans are government-backed mortgages designed to help first-time homebuyers and those with less-than-perfect credit achieve homeownership. With lower down payment requirements and flexible credit guidelines, FHA loans make homeownership accessible to more Americans.

Conventional Loans

Conventional loans are not backed by government agencies and typically offer the most flexibility for qualified borrowers. With options for as little as 3% down and the ability to cancel mortgage insurance, conventional loans are ideal for borrowers with good credit.

Ready to Put This Knowledge to Work?

Connect with an NMHL mortgage expert who can help you apply what you have learned.