Benefits Of FHA Loans. An FHA loan can grant many borrowers the opportunity to become homeowners – especially those who have a somewhat low credit score and a reasonably high amount of debt. Known to be more forgiving and less restrictive than some other loan types, FHA loans present numerous benefits.
With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are often a good fit for first-time home buyers or people with little savings or credit challenges.
Perhaps the biggest downside of taking out an FHA loan is that you're stuck paying mortgage insurance premiums (MIPs) for the life of your loan. MIP consists of two parts: the up-front mortgage premium, which is 1.75% of your base loan amount, and the annual MIP, which depends on various factors.
FHA loans are generally best for borrowers with lower credit scores, limited down payment savings or both. This might include first-time or younger homebuyers, or those with smaller incomes.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
In summary, here's what we found: You need to make at least $54,000 per year to afford a $200,000 house. You need to make at least $81,000 per year to afford a $300,000 house. You need to make at least $109,000 per year to afford a $400,000 house.
Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
FHA loans can only be used to finance a primary residence and may not be used to finance a second home, vacation home or rental property. High Debt Ratios. While FHA loans can be much more forgiving compared to other types of loans one of the reasons an FHA application is declined is due to high debt-to-income ratios.
The answer to this question is "no." There are no minimum income requirements for FHA loans.
Which loan is better: FHA or conventional? To a large extent, that depends on you and your financial profile. Generally, a conventional loan is best for those with strong credit and a bigger home buying budget. If your credit score is below 620, a loan backed by the FHA might be your only option.
For instance, the minimum required down payment for an FHA loan is only 3.5% of the purchase price.
Do FHA loans have higher monthly payments? That depends. FHA loans require mortgage insurance, which will increase your monthly mortgage payments. But so do conventional loans with less than 20 percent down.
FHA stands for Federal Housing Administration. The FHA insures certain loans with the intention of making it easier for people who would not otherwise qualify for a home loan to do so. Essentially the government guarantees lenders that they will be repaid for the loan even if the buyer fails to do so.
The property needs to be free of known hazards that affect health and safety, the home's use, or may affect the structural soundness of the house and its marketability. These include, but are not limited to: Toxic chemicals. Radioactive materials.
Can I rent out my FHA home after the first year? Yes, after fulfilling the initial one-year occupancy requirement, you can rent out your FHA home. However, if you plan to purchase another property with an FHA loan, you will need to meet specific conditions and justifications for maintaining the original FHA loan.
FHA Rule 75 states that 75% of the rental income must exceed the monthly mortgage for the property to be self-sufficient. This percentage must be at least enough to cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance.)
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA's relatively lenient financial requirements and stricter appraisal and property standards.
Since your home must meet FHA property minimums, the appraisal process may include more requirements than a conventional home loan. The appraisal is required to be performed by an FHA approved appraiser and may have additional inspections which could result in a higher appraisal cost.
The house you can afford on a $70,000 income will likely be between $290,000 to $360,000. However, your home-buying budget depends on quite a few financial factors — not just your salary.
The FHA approves loan amounts based on factors like your credit score, living expenses, assets, debt-to-income ratio, household income, and the value of the property. As of 2025, the FHA maximum loan limit for a one-unit property is $524,225 in low-cost areas and $1,209,750 in high-cost areas.
Your monthly payment for a $300,000 mortgage and a 30-year loan term could range from $1,798 to $2,201, depending on your interest rate and other factors. Learn more about the upfront and long-term costs of a home loan.