FHA Loans: Buying a Home With 3.5% Down

1"The government lends you the money."

FHA does not lend money. It insures mortgages made by approved lenders, paying the lender if a borrower defaults, and that protection is what lets lenders accept smaller down payments and weaker credit histories. You apply with any FHA-approved bank, credit union or mortgage company, and the interest rate and fees vary from one lender to the next, so the same FHA loan can cost noticeably more at one than at another.

FHA loans can buy a home of one to four units, a condominium in an approved project or certain manufactured homes, as long as you live there as your primary residence, usually moving in within 60 days of closing. A version called the 203(k) loan can also finance repairs or renovation along with the purchase.

2"FHA loans are only for first-time buyers."

There is no first-time buyer rule and no income limit. What FHA limits is the loan: each county has a maximum, which in 2026 runs for a one-unit home from $541,287 in lower-cost areas to $1,249,125 in the most expensive ones. HUD's online tool shows the limit for your county.

Borrowers must generally be U.S. citizens or lawful permanent residents. Since May 2025, other noncitizens, such as people on work or student visas, no longer qualify.

3"A 580 credit score means you're approved."

FHA's own floor is a score of 580 for the 3.5 percent minimum down payment, or 500 to 579 with 10 percent down. Many lenders set higher minimums of their own, so a 590 can be accepted by one lender and declined by another. The score is also only part of the decision:

• Income and debts: steady, documented income and a manageable share of it going to debts, which the lender checks.
• Past problems: generally at least two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure, with some exceptions. A borrower in a Chapter 13 plan may qualify after a year of on-time plan payments, with the court's permission.

If one lender says no, ask why, and try another.

4"You need the 3.5 percent in your own savings."

The down payment can come from your savings, from a gift from a family member, employer, union or eligible charity, or from down payment assistance offered by state and local housing finance agencies. A gift usually needs a signed letter saying it is a gift and not a loan, and the lender will ask to trace the money, so move it early and keep the records.

Budget separately for closing costs, the lender's and title fees, prepaid taxes and insurance, which come on top of the down payment and often run to several thousand dollars. Sellers can pay part of them, up to 6 percent of the price, but not your down payment. FHA also allows a family member who will not live in the home to be a co-borrower, adding their income to help you qualify; they share responsibility for the loan, so both of you should understand the commitment.

5"Mortgage insurance drops off once you have enough equity."

This is the belief that costs FHA borrowers most. FHA loans require two premiums:

• Upfront: 1.75 percent of the loan amount, paid at closing or, more often, added to the loan.
• Annual: a percentage of the loan balance paid in monthly installments; most borrowers today pay 0.55 percent a year, though the rate depends on the loan amount, term and down payment.

With a down payment of less than 10 percent, the annual premium lasts for the life of the loan, however much equity you build; with 10 percent or more it ends after 11 years. The usual way out is to refinance into a conventional loan once you have enough equity, which depends on rates and your credit at the time.

6"FHA is always the cheapest way to buy with little down."

Not always. Conventional loans can require as little as 3 percent down for some buyers, and their private mortgage insurance can be canceled once you reach enough equity, which can make them cheaper for borrowers with good credit. VA loans for eligible veterans and USDA loans in rural areas can require no down payment at all; our guide to rural home loans and grants covers USDA's programs. FHA tends to be most useful for buyers with lower credit scores or higher debts.

Ask at least two lenders for a written Loan Estimate for each type you qualify for, and compare the total monthly payment, the cash needed at closing and how long mortgage insurance lasts.

7"The appraisal only checks the price."

An FHA appraisal also checks that the home meets basic safety and condition standards, such as a sound roof, working utilities and safe stairs. If it does not, the repairs usually have to be made before closing, which matters when you are buying an older home or one sold as is. A condominium generally must be in a project approved by FHA, though a single unit can sometimes be approved on its own, and a manufactured home must be on a permanent foundation and classed as real estate. Check before you make an offer. The appraisal protects the lender, not you: a separate home inspection, which you choose and pay for, looks much more closely and is still worth having.

8What is true: the loan can go with the house

One advantage of FHA loans is easy to miss when you buy and valuable when you sell: they are assumable. A buyer who qualifies with your lender can take over your loan, including its interest rate and remaining term, instead of taking out a new one. When rates have risen since you borrowed, that can make your home more attractive than others on the market. The buyer pays you the difference between the price and the loan balance, and you should get a release from the lender so you are no longer responsible for the loan.

9If payments get hard later

If you fall behind or expect to, contact your loan servicer at once. FHA requires servicers to consider options to help you keep the home, such as a repayment plan, forbearance, a loan modification or a partial claim, in which FHA pays part of the missed amount as a separate zero-interest loan due when you sell or refinance. A HUD-approved housing counselor can help you ask for these options free. Be wary of companies that charge upfront fees to save your home.

If you rent with a housing voucher, ask your housing agency whether it lets voucher holders use the assistance toward a mortgage; see our guide to Section 8.

10Before you rely on these figures

Credit score minimums, premiums and loan limits change, and lenders may add their own rules; ask your lender for current terms. This guide is general information, not a loan offer or financial advice.