The FHA loan is the federal government’s primary mechanism for expanding mortgage access. The Federal Housing Administration insures these loans, which allows lenders to offer them with smaller down payments and more lenient credit standards than they could on conventional loans.
Typical FHA loan parameters
- Minimum down payment: 3.5% (with FICO 580+); 10% (with FICO 500-579)
- Credit score minimum: 500-580 depending on down payment; most lenders require 620+ in practice
- DTI cap: 43-57% back-end with AUS approval
- Loan limits: vary by county; ~$524K floor in 2026 baseline, up to $1.2M+ in high-cost areas
- Mortgage Insurance: upfront 1.75% MIP plus annual MIP of 0.55-1.05% depending on loan term and LTV. Most FHA loans require MIP for the life of the loan
- Property requirements: must be primary residence (not investment); FHA appraisal includes habitability standards beyond market value
Who FHA loans serve
FHA’s lower credit and down payment thresholds make these loans accessible to first-time buyers, borrowers with limited savings, and those with credit history showing past difficulties (medical collections, prior bankruptcy at least 2 years discharged, foreclosure at least 3 years past). Many FHA borrowers later refinance to conventional once they’ve built equity and improved their credit, primarily to remove the lifetime MIP.
FHA Streamline Refinance
FHA offers a “Streamline Refinance” program that allows existing FHA borrowers to refi to a lower rate with reduced documentation, no appraisal, and no income verification (in most cases). Often used during rate-drop cycles to lower monthly payments quickly.
