An FHA loan is insured by the Federal Housing Administration, which means the government reimburses the lender if you default. That insurance is what lets FHA approve buyers that conventional underwriting would turn away.
Who it's best for
First-time buyers, buyers with a credit score between 580-679, buyers who've had a bankruptcy or foreclosure in the past few years, and anyone with less cash saved for a down payment. With a 580 score you only need 3.5% down; FHA will even go down to 500-579 with 10% down.
Why people get FHA over conventional
- Lower credit bar. FHA underwriting is meaningfully more forgiving of past credit issues, collections, and thinner credit files.
- More lenient DTI. FHA will often approve debt-to-income ratios up to 50% with compensating factors, where conventional typically caps around 45%.
- Assumable. A future buyer can take over your FHA loan and its interest rate if they qualify — a real selling point if rates rise after you buy.
Property requirements
FHA has stricter property condition standards than conventional — the home has to meet HUD's minimum property standards (working systems, no major safety hazards, sound roof) before the loan can close. This can complicate buying a fixer-upper unless you use the FHA 203(k) renovation loan specifically built for that.
FHA loan limits vary by county and change annually. Figures above are general program rules, not a quote — confirm current numbers with a licensed loan officer.