02 What you need to know
Who can use an FHA loan
An FHA loan is a mortgage insured by the Federal Housing Administration, part of HUD. The insurance protects the lender, which is why FHA guidelines can be more flexible than conventional ones. There is no rule that you must be a first-time buyer.
The core requirements
- Down payment. 3.5% minimum with a credit score of 580 or higher. Scores from 500 to 579 require at least 10% down.
- Occupancy. FHA is for primary residences. At least one borrower generally must move in within 60 days of closing and intend to live there for at least a year. Vacation homes and investment properties don’t qualify.
- Income and debts. Your DTI (debt-to-income ratio: monthly debts plus the new housing payment, divided by gross monthly income) must fit FHA guidelines.
- Loan limit. FHA limits vary by county. Check yours with our FHA guide or HUD’s official FHA mortgage limits lookup.
- Property standards. The FHA appraisal checks minimum property standards for safety, security and soundness, not just value.
FHA mortgage insurance
FHA charges an upfront mortgage insurance premium of 1.75% of the base loan, usually added to the loan, plus an annual MIP paid monthly. With less than 10% down, annual MIP generally lasts for the life of the loan; with 10% or more down, it lasts 11 years.
Where FHA can beat conventional
- Higher DTI tolerance. With an automated approval or documented compensating factors, such as reserves or minimal payment increase, FHA can often approve higher ratios than conventional.
- Shorter waiting periods after credit events. FHA generally requires two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure. Conventional waiting periods for the same events are typically longer.
- Credit score pricing. FHA pricing is usually less sensitive to a mid-range credit score than conventional pricing.
03 Real-world example
A previous homeowner buying again with FHA
You sold your last home two years ago and have been renting. Your income is solid, but you carry student loans and a car payment that put your DTI above where conventional underwriting is comfortable. You now want a $650,000 home to live in.
Having owned before doesn’t disqualify you. Because you no longer own a home with an FHA loan on it, there’s no conflict with FHA’s general one-loan-at-a-time rule.
| Item | Amount |
|---|---|
| Purchase price | $650,000.00 |
| Minimum down payment (3.5%) | $22,750.00 |
| Base loan amount (96.5%) | $627,250.00 |
| Upfront MIP (1.75% of base loan), financed | $10,976.88 |
| Total loan amount | $638,226.88 |
Assumptions: illustration only. Credit score of 580 or higher, primary residence, and a base loan within the current FHA limit for the county, which you should confirm on HUD’s lookup. Closing costs, prepaid items and annual MIP are not shown. Approval depends on full underwriting.
04 What most people overlook
What repeat buyers overlook about FHA
- Still own your current home? FHA generally allows one FHA-insured loan at a time. Limited exceptions include relocating for work, an increase in family size that the current home no longer fits, or moving out of a home you own jointly with someone who stays. Each has documentation rules.
- The clock runs from the right date. For bankruptcy, the waiting period runs from the discharge date, not the filing date. For foreclosure, it runs from when the foreclosure was completed.
- Condos need approval. FHA financing on a condo generally requires the project or the unit to meet FHA approval rules. Check before you write the offer.
- The appraisal is stricter. Peeling paint on older homes, missing handrails, or broken systems can trigger required repairs before closing.
- MIP isn’t permanent if you plan for it. Many FHA borrowers later refinance into a conventional loan once equity and credit allow, which removes the MIP.
FHA is a qualifying tool, not a label. The question isn’t whether you’ve owned before. It’s which program gives you the best approval and total cost for this purchase.
05 How I’d approach it
How I decide between FHA and conventional for you
I don’t pick FHA because you’re new to buying. I pick it when it gets you approved on better terms than anything else.
For a repeat buyer, I run FHA and conventional side by side from the first conversation. The first things I check are your credit score, your DTI, and any credit events in the past seven years with exact dates.
- I run both through automated underwriting to see which approves and at what ratios.
- I compare the full monthly payment, including PMI on conventional and MIP on FHA, plus the upfront MIP.
- I confirm occupancy and whether you still own another home, because that can decide FHA eligibility on its own.
- I verify the county loan limit and, for condos, the project’s FHA status before you shop.
If FHA wins today, I show you the likely refinance path to conventional later so the mortgage insurance has an exit.