FHA MORTGAGE GUIDE
FHA Loans: Requirements, Costs and Options
An FHA loan is a mortgage made by an FHA-approved lender and insured by the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development. FHA insurance protects the lender against certain losses—not the borrower.
Eligible buyers may be able to purchase a one- to four-unit primary residence with a down payment as low as 3.5%. FHA loans also require mortgage insurance and have county loan limits, occupancy rules, appraisal requirements and provider underwriting.
ShopRates helps consumers understand FHA financing and connect with independent mortgage providers that can evaluate eligibility and terms.
Exploring options does not guarantee FHA eligibility, approval, a particular rate, savings or loan terms.
Compare the complete FHA loan
FHA LOANS AT A GLANCE
Who makes the loan
An FHA-approved lender; FHA provides mortgage insurance
Down payment
As low as 3.5% for eligible borrowers under current HUD guidance
Property
Eligible one- to four-unit primary residence; property and appraisal rules apply
Mortgage insurance
Upfront and annual mortgage insurance generally apply
Loan limit
Varies by county, calendar year and number of units
First-time status
Not required; repeat buyers may qualify if all requirements are met
How Does an FHA Loan Work?
The Federal Housing Administration does not lend money directly to homebuyers. An FHA-approved lender originates and underwrites the mortgage, and FHA insures the lender against certain losses if the borrower defaults.
That insurance can support lower down payments and more flexible qualification than some conventional options. The borrower pays for FHA mortgage insurance through an upfront premium and an annual premium commonly collected in monthly installments.
The provider still evaluates the borrower, property and transaction. Meeting one FHA policy threshold does not guarantee approval because the complete file, automated or manual underwriting and provider requirements matter.
Direct answer: FHA is the mortgage insurer, not the consumer’s lender. ShopRates is neither; it provides education and referrals to independent providers.
When Might an FHA Loan Fit?
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| Situation | Why FHA may be considered | What to compare |
|---|---|---|
| Smaller down payment | Why FHA may be consideredEligible buyers may put as little as 3.5% down | What to compareMortgage insurance, payment and cash reserves |
| Credit challenges | Why FHA may be consideredFHA policy can be more flexible than some conventional paths | What to compareProvider overlays, pricing and documented history |
| 1–4 unit primary home | Why FHA may be consideredEligible owner-occupants may finance qualifying multi-unit property | What to compareSelf-sufficiency, rental-income and reserve rules when applicable |
| Property needs repairs | Why FHA may be consideredFHA 203(k) may combine acquisition/refinance with eligible improvements | What to compareContractor, consultant, draws, timeline and added cost |
| Existing FHA mortgage | Why FHA may be consideredStreamline refinance may reduce documentation in eligible cases | What to compareNet tangible benefit, closing costs and no cash-out limits |
| Long ownership horizon | Why FHA may be consideredFixed-rate FHA can provide principal-and-interest stability | What to compareLong-run mortgage insurance versus conventional alternatives |
FHA may be less attractive when a conventional option has lower mortgage-insurance cost, when the property cannot satisfy FHA requirements, when the needed loan exceeds the county limit, or when the buyer will not occupy the home as a primary residence.
FHA Loan Requirements
FHA loan eligibility is based on the complete borrower, property and transaction. Common review areas include credit history, qualifying income, employment or business stability, monthly debts, funds to close, reserves when required, occupancy, property value and condition, and the requested loan structure.
HUD establishes FHA program policy, but lenders can apply additional credit or documentation standards. Automated underwriting findings or manual underwriting can change the required documentation and allowable risk factors.
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| Factor | What may be evaluated | Consumer guardrail |
|---|---|---|
| Credit | What may be evaluatedScores, payment history, collections, judgments, bankruptcy/foreclosure history | Consumer guardrailA score alone never guarantees approval |
| Income | What may be evaluatedAmount, stability, likelihood of continuance and documentation | Consumer guardrailGross deposits are not automatically qualifying income |
| Debt-to-income | What may be evaluatedRequired monthly obligations relative to qualifying income | Consumer guardrailMaximum ratios vary with underwriting and provider rules |
| Cash and assets | What may be evaluatedDown payment, closing funds, gift/assistance source and reserves | Consumer guardrailKeep a clear paper trail; avoid unexplained deposits |
| Occupancy | What may be evaluatedIntent and ability to occupy as a principal residence | Consumer guardrailMisstating occupancy can be mortgage fraud |
| Property | What may be evaluatedAppraised value, safety, security, soundness and eligibility | Consumer guardrailRepairs or a different program may be required |
FHA Down Payment and Funds to Close
HUD states that an FHA down payment can be as low as 3.5% of the purchase price for eligible borrowers. The exact minimum required investment and maximum financing depend on the credit profile and other FHA requirements.
Permitted funds may come from documented borrower assets and, when program rules are met, gifts, approved assistance, certain grants or other eligible sources. The provider must verify the source and transfer of funds.
Cash to close is broader than the down payment. It can include closing costs, prepaid interest, initial escrow deposits, inspection expenses and reserves or immediate repairs.
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| Cash category | Examples | Question to ask |
|---|---|---|
| Down payment | ExamplesMinimum required borrower investment | Question to askWhat amount and sources are eligible for this file? |
| Loan costs | ExamplesOrigination, points, appraisal and certain services | Question to askWhich costs are controlled by the lender? |
| Other costs | ExamplesTitle, recording, taxes, insurance and prepaids | Question to askWhich amounts can change? |
| Credits/assistance | ExamplesSeller, lender, gift or program funds when permitted | Question to askDo limits, liens or repayment triggers apply? |
| Post-closing reserve | ExamplesFunds remaining for repairs and emergencies | Question to askWill the purchase leave a sustainable cushion? |
Down payment assistance →  · First-time homebuyer loans →  · HUD FHA overview
FHA Mortgage Insurance
FHA mortgage insurance protects the lender against certain losses; it does not protect the borrower from foreclosure or make the loan risk-free. Most FHA forward mortgages include an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (annual MIP), commonly collected monthly.
The upfront premium can often be financed into the mortgage, which increases the loan balance. Annual MIP depends on factors such as loan term, base loan amount and loan-to-value ratio. Duration rules can require premiums for 11 years or for the mortgage term depending on the case and applicable policy.
Do not assume FHA mortgage insurance cancels under the same rules as conventional private mortgage insurance. Ask the provider to show the premium amount, financing treatment and expected duration in writing.
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| Insurance component | How it is charged | What to compare |
|---|---|---|
| Upfront MIP | How it is chargedGenerally assessed as a percentage of the base loan amount; may be paid or financed when permitted | What to compareAdded balance, cash option and total interest |
| Annual MIP | How it is chargedAnnual charge typically divided into monthly payments | What to compareRate, duration, monthly amount and future refinance economics |
| Conventional PMI | How it is chargedPrivate insurance on certain conventional loans, generally below 20% equity/down | What to comparePremium, cancellation rights and conventional pricing |
HUD MIP resources  · HUD upfront MIP overview  · CFPB mortgage-insurance explanation
2026 FHA Loan Limits
FHA sets forward-mortgage limits annually by area and number of units. For FHA case numbers assigned in 2026, the one-unit low-cost-area floor is $541,287 and the one-unit high-cost-area ceiling is $1,249,125. Limits between those values apply in many higher-cost counties.
The 2026 national floor and ceiling increase for two-, three- and four-unit properties. Alaska, Hawaii, Guam and the U.S. Virgin Islands are subject to special exception rules.
The applicable limit is based on the property location, unit count, case-number year and FHA calculation—not simply the city name or purchase price.
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| Property size | 2026 low-cost floor | 2026 high-cost ceiling |
|---|---|---|
| One unit | 2026 low-cost floor$541,287 | 2026 high-cost ceiling$1,249,125 |
| Two units | 2026 low-cost floor$693,050 | 2026 high-cost ceiling$1,599,375 |
| Three units | 2026 low-cost floor$837,700 | 2026 high-cost ceiling$1,933,200 |
| Four units | 2026 low-cost floor$1,041,125 | 2026 high-cost ceiling$2,402,625 |
Limits apply to FHA case numbers assigned in 2026 and vary by county. Alaska, Hawaii, Guam and the U.S. Virgin Islands are subject to special exception rules. Check your county limit with HUD →
FHA Appraisal and Property Requirements
An FHA appraisal supports two different questions: the property’s market value and whether observable conditions meet FHA’s minimum property requirements or standards. It is not a substitute for a home inspection.
An appraiser may identify conditions that must be corrected before FHA insurance can proceed. The lender determines whether repairs, additional inspections or documentation are required under FHA policy and the loan file.
Buyers should obtain an independent inspection appropriate to the property. Inspectors evaluate the home for the buyer; the FHA appraisal is performed for mortgage-insurance and valuation purposes.
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| Area commonly reviewed | Examples of possible concerns | Buyer action |
|---|---|---|
| Safety | Examples of possible concernsExposed wiring, missing handrails, health or access hazards | Buyer actionUse inspection findings and ask which repairs are required |
| Security | Examples of possible concernsAbility to protect and use the property as intended | Buyer actionVerify utilities, access and major systems |
| Soundness | Examples of possible concernsStructural or condition issues affecting continued use | Buyer actionObtain specialist review when recommended |
| Value | Examples of possible concernsComparable sales, condition and marketability | Buyer actionUnderstand appraisal contingency and reconsideration process |
| Special property | Examples of possible concernsCondo, manufactured, mixed-use or multi-unit eligibility | Buyer actionConfirm program eligibility before relying on FHA |
FHA Loan Program Options
FHA Purchase Loan
The standard FHA purchase program can finance an eligible one- to four-unit principal residence through an FHA-approved lender. Down payment, mortgage insurance, county loan limits, appraisal and underwriting requirements apply.
FHA 203(k) Rehabilitation Mortgage
FHA 203(k) financing can combine the purchase or eligible refinance of a home with funds for approved repairs or improvements. The program adds contractor, scope-of-work, appraisal, draw and completion requirements.
HUD currently describes the Limited 203(k) program as permitting up to $75,000 in financed repair costs, subject to current rules and eligible improvements. Standard 203(k) is designed for more substantial rehabilitation and can require a 203(k) consultant.
FHA 203(k) guide → · Official HUD 203(k) overview
FHA Rate-and-Term or Simple Refinance
An eligible homeowner may refinance an existing mortgage into an FHA-insured loan. Appraisal, credit, documentation, loan-to-value and benefit considerations depend on the refinance type.
Mortgage refinance options →
FHA Streamline Refinance
A streamline refinance is available only for an existing FHA-insured mortgage and may reduce certain appraisal or documentation requirements. It must satisfy current FHA eligibility and net-tangible-benefit rules and generally does not permit cash out.
“Streamline” refers to the documentation framework—not guaranteed approval, no cost or a faster closing.
Occupancy and Multi-Unit Homes
Standard FHA forward mortgages are generally intended for principal residences. The borrower must meet occupancy requirements and certify truthful intent. FHA is not a standard program for purchasing a second home or non-owner-occupied investment property.
Eligible properties can include one- to four-unit homes. A buyer purchasing a two- to four-unit property may be able to occupy one unit and use qualifying rental income from other units, subject to appraisal, underwriting and program rules.
Additional requirements can apply to three- and four-unit properties, including a self-sufficiency test. The provider must calculate eligible rental income and required reserves under current FHA policy.
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| Property/use | General FHA direction | Verify |
|---|---|---|
| One-unit primary home | General FHA directionCommon FHA use | VerifyProperty type, value and condition |
| Two-unit owner-occupied | General FHA directionPotentially eligible | VerifyRental-income treatment and reserves |
| Three- or four-unit owner-occupied | General FHA directionPotentially eligible with added rules | VerifySelf-sufficiency, reserves and limit |
| Condominium | General FHA directionUnit/project eligibility rules apply | VerifyFHA approval or eligible single-unit review |
| Manufactured home | General FHA directionMay qualify under applicable FHA program | VerifyTitle, foundation, land and construction standards |
| Second home/investment purchase | General FHA directionGenerally not the standard FHA use | VerifyLimited exceptions; compare conventional/investor financing |
Multi-unit home loans →  · Condo loans →  · Manufactured home loans →  · Investor loans →
FHA vs. Conventional, VA and USDA Loans
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| Feature | FHA | Conventional | VA | USDA |
|---|---|---|---|---|
| Government role | FHAFHA mortgage insurance | ConventionalNo federal insurance/guarantee | VAVA guarantee | USDAUSDA guarantee |
| First-time only | FHANo | ConventionalNo | VANo | USDANo |
| Low/no down signal | FHAAs low as 3.5% for eligible buyers | ConventionalCertain programs as low as 3% | VAEligible borrowers may have no down payment | USDAQualified borrowers may have no down payment |
| Insurance/fee | FHAUpfront + annual MIP generally | ConventionalPMI may apply below 20% | VAFunding fee may apply unless exempt | USDAGuarantee fees apply |
| Property/occupancy | FHA1–4 unit principal residence | ConventionalBroader uses by program | VAPrincipal residence | USDAEligible rural principal residence |
| Loan limit | FHAFHA county/unit limit | ConventionalConforming limit or non-conforming structure | VAEntitlement/lender/value rules | USDAProgram and provider rules |
No program is automatically cheapest. Compare written Loan Estimates using the same loan amount, term, rate type, lock period and assumptions.
Conventional loans →  · VA loans →  · USDA loans →
FHA Rates, APR and Closing Costs
FHA does not set one retail mortgage rate for every borrower. Rates and costs vary by provider, market conditions, loan term, credit profile, points or credits, rate-lock period, property and transaction.
Compare the note rate, APR, upfront and annual mortgage insurance, lender fees, third-party costs, payment, cash to close and cost over the time you expect to keep the mortgage.
A lower rate may require discount points. A lender credit can reduce upfront costs while increasing the rate. Ask for written break-even comparisons rather than choosing from the headline rate alone.
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| Compare | Record from each Loan Estimate | Ask |
|---|---|---|
| Rate/lock | Record from each Loan EstimateRate, points or credits, expiration | AskWhat changes if closing is delayed? |
| APR | Record from each Loan EstimateDisclosed APR and included charges | AskWhy does APR differ from the rate? |
| Mortgage insurance | Record from each Loan EstimateUFMIP financing and monthly MIP | AskHow long is annual MIP scheduled? |
| Payment | Record from each Loan EstimatePrincipal, interest, MIP, taxes and insurance | AskWhich components can change? |
| Cash to close | Record from each Loan EstimateDown payment, costs, deposits and credits | AskWhat is verified versus estimated? |
| Five-year figures | Record from each Loan EstimateTotal paid and principal reduction | AskWhich option fits the likely holding period? |
Gifts and Down Payment Assistance
FHA rules may permit eligible gift funds, grants or down payment assistance to help with the minimum required investment or closing costs. Every source, donor, transfer and program must satisfy current documentation and eligibility requirements.
Assistance is not always a grant. It may be a forgivable, deferred-payment or amortizing second mortgage secured by the property. Sale, refinance, move-out or early payoff can trigger repayment.
Compare the first-mortgage rate and fees with and without assistance, then review the second-lien note, forgiveness schedule, monthly payment and future refinance restrictions.
Ask before accepting assistance
- Is the assistance a grant or a loan?
- When is it forgiven, deferred or repaid?
- Does it change the FHA first-mortgage rate or fees?
- Are income, purchase-price, location or education rules involved?
- Can it be combined with gift funds or seller contributions?
- What happens if the home is sold or refinanced early?
Tennessee resource: Eligible Tennessee buyers may explore THDA Great Choice and Great Choice Plus through approved participating lenders. Verify current pairing, education, income, price and assistance terms directly with THDA.
FHA Document Checklist
Identity and housing
- Government ID
- Address and housing history
- Social Security information as requested
- Explanations and records for material credit events
Income and employment
- Recent pay statements
- W-2s/tax returns when required
- Employer information
- Self-employment/business records when applicable
- Other qualifying-income records
Assets and property
- Bank/investment statements
- Purchase contract
- Earnest-money paper trail
- Gift or assistance documentation
- Insurance quote
- Appraisal/repair items as requested
Privacy: Use the provider’s secure document portal. Do not send Social Security numbers, tax returns, bank statements or identity records through ordinary email or a general website form.
FHA Loan Process
- Set a comfortable payment, cash-to-close range and reserve target.
- Review credit reports, debts, income and source-of-funds documentation.
- Compare FHA with conventional, VA and USDA paths when relevant.
- Check the FHA county and property-unit loan limit.
- Request comparable preapproval scenarios from FHA-approved providers.
- Choose an eligible property and use contract protections you understand.
- Submit a complete application and supporting documents.
- Review the Loan Estimate, including upfront and annual mortgage insurance.
- Complete the FHA appraisal and an independent home inspection.
- Resolve title, insurance, repair and underwriting conditions.
- Review the Closing Disclosure and final assistance documents.
- Close, keep records, confirm servicing and understand future MIP/refinance options.
Do not derail closing: Before closing, ask the provider before opening credit, financing a vehicle or furniture, changing jobs, moving large funds, co-signing, missing payments or making undocumented deposits. Eligibility can be reverified.
Compare FHA Loan Offers
Request multiple Loan Estimates for the same loan amount, term, rate type, down payment, lock period and assistance structure. Ask the provider to explain every difference.
Review all three pages. Compare the rate, APR, points or lender credits, upfront mortgage insurance, monthly MIP, projected payment, cash to close and the “In 5 Years” figures.
Scroll sideways to see the full worksheet.
| Field | Offer A | Offer B | Offer C |
|---|---|---|---|
| Base loan amount | Offer A | Offer B | Offer C |
| Financed upfront MIP | Offer A | Offer B | Offer C |
| Total loan amount | Offer A | Offer B | Offer C |
| Rate / lock period | Offer A | Offer B | Offer C |
| APR | Offer A | Offer B | Offer C |
| Points / lender credits | Offer A | Offer B | Offer C |
| Monthly MIP | Offer A | Offer B | Offer C |
| Total monthly payment | Offer A | Offer B | Offer C |
| Estimated cash to close | Offer A | Offer B | Offer C |
| Five-year total / principal paid | Offer A | Offer B | Offer C |
Print this page or copy the fields to record each written offer side by side.
CFPB FHA loan guide  · CFPB Loan Estimate explainer  · Mortgage payment calculator →
Frequently Asked Questions
What is an FHA loan?
An FHA loan is a mortgage made by an FHA-approved lender and insured by the Federal Housing Administration. FHA insurance protects the lender against certain losses.
Does FHA lend money directly?
No. FHA provides mortgage insurance. FHA-approved lenders originate, underwrite and fund FHA-insured mortgages.
How much is the FHA down payment?
HUD states that eligible borrowers may make a down payment as low as 3.5% of the purchase price. Credit, underwriting and other requirements affect maximum financing.
Is an FHA loan only for first-time homebuyers?
No. FHA-insured financing is not limited to first-time buyers. Repeat buyers may qualify if borrower, property, occupancy and transaction requirements are met.
What are the 2026 FHA loan limits?
For 2026 FHA case numbers, the one-unit low-cost-area floor is $541,287 and the one-unit high-cost-area ceiling is $1,249,125. County, unit-count and special-area limits vary.
Does every FHA loan have mortgage insurance?
FHA mortgage insurance generally includes an upfront premium and an annual premium. Current exceptions, rates and duration depend on the loan and applicable FHA policy.
Can FHA mortgage insurance be removed?
Do not assume FHA MIP cancels like conventional PMI. Duration depends on factors including the case date, term and loan-to-value ratio. Ask the provider or servicer for the written schedule.
What credit score is required for an FHA loan?
A credit score alone does not guarantee approval. FHA’s maximum-financing framework, the complete credit history, automated or manual underwriting and provider standards all matter.
Does FHA require a home inspection?
An FHA appraisal is required for valuation and FHA property considerations, but it is not a home inspection. Buyers should consider an independent inspection.
Can an FHA loan finance a duplex or four-unit property?
Potentially. FHA can finance eligible one- to four-unit principal residences when the borrower occupies the property and all underwriting, appraisal, reserve and multi-unit rules are met.
Can an FHA loan include renovation costs?
FHA 203(k) financing may include eligible repair or improvement costs with the purchase or qualifying refinance, subject to contractor, scope, draw, appraisal and completion requirements.
Is FHA better than a conventional loan?
Neither is universally better. Compare written offers for rate, APR, mortgage insurance, down payment, property rules, monthly payment, cash to close and expected holding period.
Ready to Compare FHA Loan Options?
Explore potential FHA and alternative mortgage paths, then connect with independent providers that can evaluate your documentation, property and goals.
ShopRates is not a lender or government agency and is not affiliated with HUD or FHA. Independent providers determine eligibility and terms.
RELATED RESOURCES
Sources
- HUD FHA overview — hud.gov/helping-americans/loans
- HUD 2026 FHA forward-mortgage limits — hud.gov/news/hud-no-25-145
- HUD county loan-limit lookup — entp.hud.gov
- HUD mortgage-insurance resources — hud.gov/hud-partners/housing-mip
- HUD 203(k) program — hud.gov/hud-partners/single-family-203k
- CFPB FHA comparison guidance — consumerfinance.gov/owning-a-home/fha-loans
- CFPB consumer FHA definition — consumerfinance.gov/ask-cfpb
- CFPB Loan Estimate comparison — consumerfinance.gov/owning-a-home/loan-estimate
- HUD participating counselors — answers.hud.gov/housingcounseling
- Tennessee assistance resource — thda.org/homebuyers/down-payment-assistance
ShopRates provides general educational information and may connect consumers with independent mortgage providers. ShopRates is not a lender, bank, mortgage broker, loan originator, servicer, underwriter or government agency. ShopRates is not affiliated with or endorsed by HUD or FHA. We do not provide individualized legal, tax, investment or financial advice or guarantee approval, eligibility, rates, savings, closing dates or loan terms.
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