FHA Loan Requirements 2026: Credit Score, Down Payment, Limits

· February 25, 2026 · ·Real Estate

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 (HUD). FHA loans are designed to make homeownership accessible to borrowers who may not qualify for conventional financing – particularly first-time buyers, those with lower credit scores, and people with limited savings for a down payment.

The FHA does not lend money directly. Instead, it insures loans made by approved private lenders (banks, credit unions, and mortgage companies). If the borrower defaults, the FHA pays the lender, which is why lenders are willing to offer more favorable terms to borrowers who would otherwise be considered higher risk.

FHA Credit Score Requirements

FHA loans have the most lenient credit score requirements of any major mortgage program:

  • 580 or higher: Qualifies for the minimum 3.5% down payment. This is the threshold most lenders use as their standard.
  • 500-579: You can still qualify, but you must put at least 10% down. Note that many lenders impose their own overlays and may require 580+ regardless of FHA minimums.
  • Below 500: Not eligible for FHA financing.

Important nuance: While the FHA sets the floor at 500, most lenders have their own minimum requirements (called lender overlays) that are higher. In practice, you will find most FHA lenders require a minimum score of 580, and some set their cutoff at 620. If your score is between 500 and 579, you will need to shop specifically for lenders that work in that range.

How to Improve Your Score Before Applying

  • Pay down credit card balances below 30% of your limits (below 10% is ideal).
  • Dispute errors on your credit report through each bureau (Equifax, Experian, TransUnion).
  • Avoid opening new accounts for at least 6 months before applying.
  • Become an authorized user on a family member account with a long, clean history.
  • Do not close old accounts – length of credit history matters.

Down Payment Requirements

The FHA down payment is one of its biggest advantages:

  • 3.5% minimum with a credit score of 580+. On a $300,000 home, that is just $10,500.
  • 10% minimum with a credit score of 500-579. On a $300,000 home, that is $30,000.

Your down payment can come from multiple sources:

  • Personal savings (checking, savings, investment accounts)
  • Gift funds from family members (with a signed gift letter confirming it is not a loan)
  • Down payment assistance programs (state and local grants, Chenoa Fund, employer programs)
  • Seller concessions up to 6% of the purchase price for closing costs (but not the down payment itself)

FHA Loan Limits in 2026

FHA loan limits are set annually by HUD and vary by county based on local home prices:

  • Standard floor (low-cost areas): $498,257 for a single-family home.
  • High-cost ceiling: $1,149,825 for a single-family home in expensive metro areas like San Francisco, New York City, and parts of Los Angeles.
  • Special exception areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands have limits 50% above the standard ceiling.

Multi-unit properties have higher limits: duplexes up to approximately $638,000 (floor) and $1,472,000 (ceiling); triplexes and fourplexes have even higher caps. This makes FHA loans excellent for house-hacking – buying a 2-4 unit property, living in one unit, and renting out the others.

To find the exact limit for your county, visit the HUD FHA Mortgage Limits page and enter your state and county.

Mortgage Insurance Premium (MIP) Explained

Every FHA loan requires mortgage insurance, which protects the lender (not you) in case of default. FHA MIP has two components:

Upfront Mortgage Insurance Premium (UFMIP)

A one-time charge of 1.75% of the base loan amount, due at closing. On a $300,000 loan, that is $5,250. Most borrowers roll this into the loan amount rather than paying cash at closing, making the effective loan $305,250.

Annual Mortgage Insurance Premium

Charged monthly as part of your mortgage payment. The rate depends on your loan term, loan-to-value ratio (LTV), and loan amount:

  • 30-year loan, LTV over 95%: 0.85% annually (most common scenario for 3.5% down buyers)
  • 30-year loan, LTV 90-95%: 0.80% annually
  • 15-year loan, LTV over 90%: 0.70% annually
  • Loans over $726,200: Add 0.05-0.20% to the above rates

On a $300,000 loan at 0.85%, your annual MIP is $2,550, or approximately $212/month added to your payment.

How Long Do You Pay MIP?

  • Down payment less than 10%: MIP lasts for the life of the loan. The only way to remove it is to refinance into a conventional loan once you have 20% equity.
  • Down payment 10% or more: MIP drops off after 11 years.

This is a significant disadvantage compared to conventional loans, where PMI is automatically cancelled at 78% LTV. For many buyers, the strategy is to use an FHA loan to get into the home, build equity, and then refinance to conventional within 2-5 years to eliminate MIP.

FHA Property Requirements

The property you buy with an FHA loan must meet certain standards. An FHA appraisal is stricter than a conventional appraisal and checks for:

  • Health and safety: No peeling or chipping paint (especially in pre-1978 homes due to lead risk), working handrails on stairs, functional heating and plumbing, adequate roof life, no exposed wiring.
  • Structural soundness: No significant foundation cracks, water intrusion, or structural damage.
  • Habitability: Working kitchen, bathroom, and utilities. The home must be move-in ready.
  • Property type: Single-family homes, 2-4 unit properties, HUD-approved condos, and some manufactured homes are eligible. Co-ops and most investment properties are not.
  • Primary residence: You must live in the home as your primary residence. FHA does not finance vacation homes or investment properties (though you can rent out extra units in a multi-family property).

If the appraiser identifies issues, the seller typically must make repairs before closing, or the deal may fall through. This is one reason some sellers prefer conventional offers over FHA.

FHA vs. Conventional Loans: Side-by-Side Comparison

Here is how FHA loans compare to conventional mortgages on key criteria:

  • Minimum credit score: FHA 500-580 vs. Conventional 620-680
  • Minimum down payment: FHA 3.5% vs. Conventional 3-5% (with PMI)
  • Mortgage insurance: FHA MIP for life (if under 10% down) vs. Conventional PMI cancellable at 20% equity
  • Loan limits: FHA $498,257-$1,149,825 vs. Conventional $766,550-$1,149,825 (conforming)
  • DTI maximum: FHA up to 43% (sometimes 50%) vs. Conventional up to 50% (with strong compensating factors)
  • Property standards: FHA stricter appraisal vs. Conventional standard appraisal
  • Seller perception: FHA sometimes viewed as weaker offer vs. Conventional generally preferred by sellers

Pros and Cons of FHA Loans

Pros

  • Low down payment (3.5%) makes homeownership accessible sooner
  • Lenient credit requirements (580 minimum for most lenders)
  • Competitive interest rates, often comparable to or lower than conventional
  • Down payment can come entirely from gifts or DPA programs
  • Allows higher DTI ratios than many conventional programs
  • Available for 2-4 unit properties (great for house-hacking)

Cons

  • MIP for the life of the loan (if under 10% down) adds significant cost
  • Upfront MIP of 1.75% increases your loan balance
  • Stricter property requirements can limit your home choices
  • Loan limits may be too low for expensive markets
  • Some sellers prefer conventional offers and may reject FHA buyers

How to Apply for an FHA Loan

  1. Check your credit score and report. Get your free annual reports from AnnualCreditReport.com. Know your FICO score from all three bureaus.
  2. Calculate your DTI. Add up all monthly debt payments and divide by gross monthly income. Aim for under 43%.
  3. Save for your down payment and closing costs. Budget 3.5% down plus 2-5% for closing costs. Investigate DPA programs in your state.
  4. Find an FHA-approved lender. Use HUD lender search tool or ask your real estate agent for recommendations. Get pre-approved with at least 3 lenders.
  5. Gather documentation: Two years of tax returns and W-2s, 30 days of pay stubs, 2 months of bank statements, government-issued ID, and Social Security number.
  6. Get pre-approved. The lender will verify your income, assets, credit, and employment. Pre-approval typically takes 1-3 business days.
  7. Find a home and make an offer. Work with your agent to find a property that meets FHA property standards.
  8. Complete the FHA appraisal. Your lender will order this. The FHA appraiser checks both value and condition.
  9. Final underwriting and clear to close. Respond to any lender requests promptly. Do not make major financial changes during this period.
  10. Close on your home. Sign documents, pay remaining closing costs, and pick up your keys.

FHA Streamline Refinance

One of the best features of FHA loans is the FHA Streamline Refinance program, available to existing FHA borrowers. Benefits include:

  • No appraisal required
  • Minimal documentation (no income or employment verification in most cases)
  • Lower UFMIP (0.01%) if refinancing within 3 years
  • Must result in a tangible net benefit (lower payment or move from ARM to fixed)

If rates drop after you buy, the Streamline Refinance makes it fast and cheap to lower your payment without starting the mortgage process from scratch.

The Bottom Line

FHA loans remain one of the most accessible paths to homeownership in 2026, particularly for first-time buyers with limited savings or credit that is still being built. The 3.5% down payment, lenient credit requirements, and competitive rates make FHA an excellent stepping stone. The key trade-off is lifetime MIP – but for many buyers, the strategy is simple: buy with FHA now, build equity, and refinance to conventional in a few years to eliminate the insurance cost. If you are ready to buy but do not have 20% saved or an 740 credit score, FHA may be exactly the right tool to get you into your first home.