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FHA Home Loans: Low Down Payment Mortgage Options
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Low Down Payment Mortgage Options
Buying a home can feel out of reach when you have limited savings for a down payment or your credit isn’t perfect. FHA home loans are one financing option that may provide more flexibility for some borrowers.
An FHA mortgage is insured by the Federal Housing Administration (FHA), but the government does not lend you the money. Instead, you apply through an FHA-approved private lender. Understanding how the program works can help you compare your options and decide which type of financing fits your circumstances.
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What Is an FHA Home Loan?
An FHA home loan is a mortgage insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).
According to HUD, FHA-insured loans accounted for about 17% of U.S. home-purchase mortgages in 2024.
Private lenders provide the money, while FHA insurance helps protect the lender if the borrower defaults. The Consumer Financial Protection Bureau’s (CFPB’s) FHA loan guide provides a helpful overview of this arrangement.
- You apply with an FHA-approved lender
- The lender reviews your credit, income, debts, and other financial information
- The property must meet applicable FHA requirements
- The loan must fall within the FHA limit for the property and location
- FHA financing can be used for qualifying home purchases and certain refinances
FHA’s basic mortgage insurance program is intended for a borrower’s principal residence, not a vacation home or investment property. HUD identifies eligible properties under the basic program as one- to four-unit structures.
FHA’s principal-residence requirement means the borrower must live in one of the units. The other units can potentially be rented out. So a buyer could purchase a fourplex with FHA financing, live in one apartment, and rent the other three.
Buyers interested in other financing choices can explore our loan options.
FHA Loan Requirements
Your lender will review your overall financial situation and the home you want to purchase.
One reason buyers consider FHA financing is the possibility of a relatively small down payment.
Under FHA guidelines, borrowers with qualifying credit scores may be eligible for up to 96.5% financing of the home’s value, which corresponds to a 3.5% minimum down payment. Borrowers with credit scores between 500 and 579 are limited to 90% financing, meaning they need a down payment of at least 10%.
That means the general FHA loan down payment guidelines are:
- 3.5% minimum down payment with a qualifying credit score of 580 or higher
- 10% minimum down payment for borrowers within FHA’s 500–579 credit score range
Your closing costs may be higher than the down payment, so discuss closing costs and other expenses with your lender.
FHA credit score requirements can offer flexibility for borrowers whose credit may not meet conventional loan guidelines. However, meeting FHA’s minimum credit requirements does not guarantee approval. Individual lenders may have additional underwriting requirements and will review your full financial picture before determining eligibility.
There is more to qualifying for an FHA mortgage loan than your credit score and down payment.
A lender may review:
- Employment and income
- Existing monthly debts
Credit history - Available funds for the transaction
- The proposed mortgage payment
- Other information required during underwriting
Instead of assuming you qualify based on one factor, pre-approval can give you a clearer picture of how a lender evaluates your finances.
How FHA Mortgage Insurance Works
FHA mortgage insurance is an important part of the program. Mortgage insurance protects the lender against certain losses if a borrower defaults; it does not protect the borrower against foreclosure.
FHA mortgage insurance is different from the private mortgage insurance (PMI) that may apply to a conventional loan. An FHA loan requires two types of mortgage insurance:
Upfront Mortgage Insurance Premium
The upfront mortgage insurance premium, commonly called UFMIP, is typically 1.75% of the base loan amount. Lenders assess it when they make the loan. FHA guidelines allow you to finance this premium into the mortgage rather than pay it entirely in cash at closing.
Annual Mortgage Insurance Premium
FHA loans also include an annual mortgage insurance premium that is collected through the borrower’s mortgage payments.
How long that premium applies depends in part on the loan-to-value ratio (LTV) when the mortgage begins. For FHA case numbers assigned on or after June 3, 2013, HUD requires annual mortgage insurance for 11 years when the original loan-to-value ratio is 90% or less and for the mortgage term when it is above 90%.
FHA Loan Limits and Property Requirements
FHA loan limits set how much you can borrow through the program and vary by location and property type.
You can use the HUD FHA mortgage limits tool to check limits for a particular area.
An FHA appraisal provides an opinion of the property’s value and evaluates whether it meets applicable FHA property requirements.
- The property will be the borrower’s principal residence
- Eligible properties can include qualifying one- to four-unit homes
- The loan must remain within the applicable FHA mortgage limit
- The property must satisfy applicable FHA requirements
If your goal is to purchase a property primarily as an investment rather than your residence, FHA financing may not fit that purpose. Learn more about buying investment property through an LLC.
FHA vs. Conventional Loan
An FHA vs conventional loan comparison should consider more than the minimum down payment. Credit, mortgage insurance, occupancy, property type, and overall loan costs can all affect which option fits your circumstances.
Feature
Government Backing
FHA Financing
Insured by FHA
Conventional Financing
Generally not government-insured
Feature
Down Payment
FHA Financing
As little as 3.5% with qualifying credit
Conventional Financing
Varies by loan program
Feature
Credit Guidelines
FHA Financing
May accommodate lower credit scores
Conventional Financing
Requirements vary by program and lender
Feature
Mortgage Insurance
FHA Financing
Generally includes upfront and annual MIP
Conventional Financing
PMI may apply with a smaller down payment
Feature
Insurance Duration
FHA Financing
Depends on original LTV and other loan details
Conventional Financing
PMI may be canceled or terminate when applicable requirements are met
Feature
Occupancy
FHA Financing
Generally a principal residence
Conventional Financing
Options may include primary, second, and investment properties
Feature
Loan Limits
FHA Financing
FHA limits apply
Conventional Financing
Conventional loan limits and program requirements vary
Conventional and FHA loans can differ in their costs and qualification requirements. Borrowers can compare Loan Estimates to look at interest rates, monthly payments, mortgage insurance, upfront costs, and other expenses before choosing a loan.
Our mortgage calculator can also help you explore different payment scenarios.
Are FHA Loans Only for First-Time Homebuyers?
No. A common misconception is that FHA loans are only for first-time buyers. A first-time homebuyer FHA loan is an FHA loan used by someone purchasing their first home.
Previous homeowners may also qualify for FHA financing if they meet the applicable occupancy, FHA, and lender requirements.
Can You Refinance an FHA Loan?
Existing FHA borrowers may have several refinancing paths, depending on their circumstances.
One option is an FHA Streamline Refinance, which allows eligible homeowners with an existing FHA-insured mortgage to refinance with limited credit documentation and underwriting. Borrowers may also be able to refinance into another type of mortgage if they qualify.
Because refinancing replaces an existing mortgage with a new one, consider the new loan’s costs and terms. Our mortgage refinance outlook discusses some of the factors homeowners may want to review.
For example, FHA offers refinance programs for qualifying borrowers, including options specifically for homeowners with an FHA-insured mortgage. Borrowers may also explore refinancing into another type of mortgage when eligible.
Because refinancing replaces an existing mortgage with a new one, consider the new loan’s costs and terms. Our mortgage refinance outlook covers considerations homeowners may want to review.
Get Pre-Approved for an FHA Home Loan
Choosing a mortgage starts with understanding how different loan programs apply to your finances.
Pre-approval can give you a clearer picture of how a lender evaluates your finances.
Before speaking with a lender, review our questions to ask a mortgage lender. If you have previously had trouble qualifying, you can also learn about possible next steps after being denied for a mortgage.
Contact Phast Funding to discuss your homebuying goals, explore FHA home loans, and learn which mortgage options may be available based on your financial situation.
FAQs
Can you refinance an FHA loan?
Yes. FHA offers refinance options for eligible borrowers, including programs for homeowners with an FHA-insured mortgage. Depending on your circumstances, you may also be able to refinance into another type of mortgage.
Which is better: FHA or conventional loan?
Neither option fits every borrower. An FHA loan may provide more flexibility for certain credit profiles and down payment amounts, while conventional financing has different mortgage insurance, occupancy, and qualification rules. Comparing Loan Estimates can help you evaluate each option’s costs and terms.
How much down payment do I need for an FHA loan?
The minimum FHA loan down payment is 3.5% with a qualifying credit score of at least 580. FHA guidelines require 10% down for borrowers with scores between 500 and 579.
What credit score do I need for an FHA loan?
Under current FHA credit score requirements, FHA policy permits scores of 580 or higher for maximum financing. Scores from 500 through 579 may qualify if the borrower has at least a 10% down payment. Lender requirements may differ.
Are FHA loans only for first-time homebuyers?
No. FHA home loans are not limited to first-time buyers. Repeat buyers may also use FHA financing when they meet the program’s occupancy and other eligibility requirements.
