FHA Home Loans: Low Down Payment, Flexible Credit, Real Answers
After 23 years of originating FHA loans, I can tell you this — the program is better than most people realize, and more nuanced than most loan officers explain.
What Is an FHA Loan, Really?
An FHA loan is a mortgage insured by the Federal Housing Administration, which is part of HUD. That insurance is what makes the program work — it protects the lender against loss if the borrower defaults, which is why lenders are willing to accept lower down payments and more flexible credit standards than they would on a conventional loan.
Here's what I tell every borrower who asks about FHA: it's not a "starter loan" and it's not a "bad credit loan." It's a tool. A very good tool, in the right situation. I've used it to help first-time buyers in Arizona get into their first home with 3.5% down. I've used it to help a family recovering from a medical bankruptcy buy again two years later. And I've used it to help an investor house-hack a fourplex and live rent-free within a year of closing.
The key is understanding when FHA is the right fit and when another program — like conventional or VA — makes more sense. That's where having a broker matters. I don't have one FHA lender to offer you. I have dozens, and each one has slightly different guidelines layered on top of FHA's base requirements.
Why Borrowers Choose FHA
These are the actual advantages I walk through with borrowers every week — not marketing fluff, but program features that solve real problems.
3.5% Down Payment
On a $350,000 home, that's $12,250 out of pocket. And the entire amount can come from gift funds — a family member, employer, or down payment assistance program.
Flexible Credit Guidelines
FHA's floor is a 580 credit score (or 500 with 10% down). More importantly, FHA lenders tend to be more forgiving of credit events like collections, late payments, and past bankruptcies.
1-4 Unit Properties
Buy a duplex, triplex, or fourplex with FHA financing. Live in one unit, rent the rest. This is one of the most powerful wealth-building strategies I help borrowers execute.
Higher DTI Tolerance
FHA allows debt-to-income ratios up to 50% in many cases — sometimes even higher with strong compensating factors. That flexibility matters when housing costs are high relative to income.
Who Is an FHA Loan Actually For?
I get this question constantly, and the honest answer is: it depends. FHA isn't automatically the best choice for everyone, and I'll never push a borrower into it if another program works better. But here are the profiles where FHA consistently makes sense:
First-Time Buyers Without a Huge Down Payment
If you're buying your first home and don't have 5% to 20% saved up, FHA's 3.5% minimum is hard to beat. And because the entire down payment can be gifted, I've closed loans where the buyer's out-of-pocket cost was effectively just the earnest money deposit. Use our mortgage calculator to see what your actual monthly payment might look like.
Borrowers Rebuilding Credit
Life happens. Medical bills, divorce, job loss — I've seen every scenario. FHA is more forgiving of past credit events than conventional. You can qualify two years after a Chapter 7 bankruptcy, one year after a Chapter 13 (with court approval and on-time payments), and three years after a foreclosure. Those are FHA's guidelines — some lenders add their own waiting periods on top, which is another reason working with a broker matters.
House-Hackers and Small Property Investors
This is where FHA really shines and most borrowers don't even know about it. You can buy a 2, 3, or 4 unit property with FHA financing as long as you live in one of the units for at least twelve months. The rental income from the other units can help you qualify for the loan, and in many markets, the rent covers most or all of your mortgage payment.
Real Scenario: The FHA Fourplex Strategy
I recently helped a buyer in the Phoenix metro area purchase a fourplex for $420,000 using FHA financing. Their down payment was $14,700 (3.5%). They live in one unit and rent the other three for a combined $3,200 per month. After their mortgage payment, taxes, insurance, and MIP, they're cash-flow positive by roughly $400 per month — and they're building equity in a $420,000 property. That's the power of FHA on a multi-unit.
Borrowers With Higher Debt-to-Income Ratios
Conventional loans typically cap your DTI around 45% (sometimes 50% with strong factors). FHA is more flexible here — I regularly close FHA loans at 50% DTI, and in some cases up to 55% or even 57% with the right compensating factors like reserves, minimal payment shock, or residual income. If your car payments, student loans, and credit cards are pushing your DTI higher, FHA may be the path forward.
FHA Eligibility: What You Actually Need
I'll give you the FHA guidelines, and then tell you what lenders actually want — because there's a difference.
Credit
FHA minimum vs. lender reality
- FHA floor: 580 score for 3.5% down
- FHA floor: 500 score with 10% down
- Most lenders want 620+ (their overlay)
- Some of our lenders go to 580 with clean recent history
- Bankruptcy: 2 years after Ch. 7, 1 year into Ch. 13
- Foreclosure: 3 year waiting period
Income & Employment
Documenting your ability to repay
- Two years of employment history (gaps explained)
- W-2 borrowers: two recent pay stubs + 2 years W-2s
- Self-employed: 2 years tax returns required
- DTI up to 50% (sometimes higher with compensating factors)
- Part-time, overtime, and bonus income may qualify
- Social Security, disability, and pension income eligible
Property
What FHA will and won't finance
- 1-4 unit primary residences
- Must be owner-occupied (12 month minimum)
- No investment or second home use
- Condos must be on FHA approved list or get spot approval
- FHA appraisal includes health & safety inspection
- Manufactured homes eligible with permanent foundation
How the FHA Loan Process Works (From Someone Who's Done Thousands)
I've originated FHA loans for over two decades. The process itself isn't complicated, but the details matter — and the details are where most loan officers stumble. Here's what the process actually looks like when you work with us:
Step 1: Pre-Qualification and Pre-Underwrite
Before you start shopping for homes, I want to know exactly where you stand. Not a five-minute conversation and a pre-approval letter — an actual review of your income documentation, credit report, and assets. I pre-underwrite every file, which means I'm looking at your loan the way an underwriter will. This avoids surprises later. When I give you a number, I'm confident in it.
Step 2: Find Your Home and Go Under Contract
Once you're pre-approved, your real estate agent helps you find the right property. When you go under contract, we move fast. I submit your full loan package to the lender typically within 24 to 48 hours of receiving the executed contract.
Step 3: FHA Appraisal
FHA appraisals are slightly different from conventional appraisals. The appraiser doesn't just value the property — they also check for health and safety issues. Peeling paint on a pre-1978 home, exposed wiring, missing handrails, non-functional mechanical systems — these are the kinds of things that can trigger required repairs. I flag potential issues early so we're not caught off guard. The appraisal is assigned through FHA's portal and typically takes 7 to 14 days.
Step 4: Underwriting and Conditions
Because I pre-underwrite the file, we usually get a clean approval or a short list of straightforward conditions. Most conditions are documentation-related: updated bank statements, a letter of explanation for a large deposit, verification of gift funds. I coordinate all of this so you know exactly what's needed and when.
Step 5: Clear to Close
Once all conditions are satisfied, the lender issues a clear to close. We finalize your closing disclosure (you'll have a three business day review period as required by the CFPB's TRID rules), and then you sign at the title company. Most FHA purchases close in 30 to 45 days. We frequently close early.
FHA Costs: Mortgage Insurance Explained Honestly
This is the part of FHA that generates the most questions — and the most misinformation. Let me break it down clearly.
FHA has two types of mortgage insurance: an upfront premium (UFMIP) and an annual premium (MIP) that's paid monthly. Both exist because the FHA insurance fund needs to stay solvent to continue backing these loans. It's the cost of the program's flexibility.
Upfront Mortgage Insurance Premium (UFMIP)
The UFMIP is 1.75% of the base loan amount. On a $300,000 loan, that's $5,250. In almost every case, this is financed into the loan — you don't pay it out of pocket. Your loan amount becomes $305,250, and your monthly payment is based on that figure. If you refinance into another FHA loan within three years, a portion of the UFMIP is refundable.
Annual MIP (Paid Monthly)
The annual MIP rate depends on your loan amount, loan term, and loan-to-value ratio. For most borrowers — those putting 3.5% down on a 30-year term with a loan amount at or below $726,200 — the annual MIP rate is 0.55%. That's significantly lower than the 0.85% rate that was in effect before March 2023.
| Loan Term | Loan Amount | LTV | Annual MIP |
|---|---|---|---|
| > 15 years | ≤ $726,200 | ≤ 90% | 0.50% |
| > 15 years | ≤ $726,200 | 90.01% – 95% | 0.50% |
| > 15 years | ≤ $726,200 | > 95% | 0.55% |
| > 15 years | > $726,200 | ≤ 90% | 0.70% |
| > 15 years | > $726,200 | > 95% | 0.75% |
| ≤ 15 years | ≤ $726,200 | ≤ 90% | 0.15% |
How Long Does FHA MIP Last?
If you put less than 10% down (which is most FHA borrowers), the annual MIP stays for the life of the loan. It does not cancel at 20% equity like conventional PMI does. If you put 10% or more down, the MIP drops off after 11 years. The most common strategy for eliminating FHA MIP is to refinance into a conventional loan once you've built enough equity and your credit score supports better conventional pricing. I help borrowers plan this from day one.
What Does This Actually Cost Per Month?
Let's use a real example. On a $350,000 purchase with 3.5% down:
- Base loan amount: $337,750
- UFMIP (1.75%, financed): $5,911 → total loan: $343,661
- Annual MIP at 0.55%: $1,858 per year → $155 per month
That $155 per month is the cost of getting into a home with $12,250 down and a 580+ credit score. For many borrowers, that tradeoff makes sense — especially when the alternative is waiting years to save a larger down payment while rents keep climbing.
2026 FHA Loan Limits
FHA loan limits are set annually by HUD and vary by county. The limits determine the maximum loan amount you can borrow with FHA insurance. For 2026, limits increased 3.26% from the prior year.
Maricopa County, AZ (Gilbert, Mesa, Chandler, Scottsdale, Phoenix)
The 2026 FHA loan limit for a single-family home in Maricopa County is $557,750. That covers the vast majority of homes in the Gilbert, Mesa, Chandler, and Phoenix markets. For a duplex, triplex, or fourplex, the limits are higher — check HUD's official lookup tool for multi-unit limits in your county.
| Property Type | National Floor (2026) | High-Cost Ceiling (2026) |
|---|---|---|
| 1 Unit (Single Family) | $541,287 | $1,249,125 |
| 2 Units (Duplex) | $693,050 | $1,599,375 |
| 3 Units (Triplex) | $837,700 | $1,933,200 |
| 4 Units (Fourplex) | $1,041,125 | $2,402,625 |
If you need a loan amount above your county's FHA limit, you may want to look at conventional financing or a jumbo loan. I can help you figure out which program gives you the best terms for your specific situation.
FHA vs. Conventional: When Does Each Make Sense?
This is probably the comparison I walk through most often with borrowers. There's no single right answer — it depends on your credit score, down payment, DTI, and how long you plan to keep the loan. Here's how I think about it:
| Factor | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% | 3% (some programs) |
| Credit score (practical) | 580 – 620+ | 620 – 680+ for best pricing |
| Mortgage insurance | 1.75% upfront + 0.55% annual (life of loan) | PMI cancels at 80% LTV |
| DTI flexibility | Up to 50%+ with compensating factors | Typically capped at 45-50% |
| Appraisal requirements | Health & safety inspection included | Value only (less stringent) |
| Gift funds | 100% of down payment can be gifted | Allowed, but some programs require borrower contribution |
| Property types | 1-4 units, primary residence only | 1-4 units, primary, second home, investment |
| Assumability | Yes (subject to qualification) | No |
My general rule of thumb: If your credit score is above 700 and you have at least 5% down, run the numbers on conventional first — you may come out ahead because conventional PMI cancels and FHA MIP doesn't. If your credit score is in the 580 to 680 range, or your DTI is high, or your down payment is coming entirely from gift funds, FHA is likely the better path. And if your home price exceeds FHA's county limit, conventional or jumbo is the move.
The honest answer is that I run both scenarios for nearly every borrower and let the numbers tell us which is better. That's the advantage of working with a broker — I'm not trying to push you into one program. I'm trying to find the one that costs you the least over the life of the loan.
Why Get Your FHA Loan Through a Broker?
Every FHA lender adds their own internal guidelines on top of FHA's base requirements. These are called "overlays," and they can vary dramatically from lender to lender. Here's what that means for you in practice:
- Credit score overlays: FHA says 580. Lender A wants 640. Lender B accepts 600. Lender C goes to 580 with manual underwriting. A bank can only offer you their own overlay. I can shop all three.
- DTI overlays: FHA allows up to 50%+. Some lenders cap at 43%. Some allow 50%. Some go higher with compensating factors. The lender I choose for your file depends on your specific numbers.
- Property type overlays: Some lenders don't want FHA condos. Some won't do 3-4 unit properties. Some have restrictions on manufactured housing. As a broker, I already know which lenders handle which property types.
- Pricing competition: When multiple lenders compete for your loan, you tend to get better terms. That's the fundamental advantage of the broker model — lenders compete, and you benefit.
After 23 years of doing this, I know which lenders are aggressive on FHA pricing, which ones have the fastest turn times, and which ones are the most flexible on overlays. That knowledge saves you money and closes your loan on time. Learn more about my approach.
FHA Loan FAQs
Real questions from real borrowers — answered by someone who's been doing this since before FHA's last major overhaul.
FHA guidelines allow a 580 credit score with 3.5% down, or a 500 credit score with 10% down. However, most lenders impose overlays above the FHA minimum. Some lenders I work with will go down to 580 with a clean payment history, while others want 620 or higher. As a broker, I match you to the lender whose overlay fits your credit profile, rather than forcing you into one lender's box. If your score is below 580, we should talk — there may still be options depending on your overall profile.
The minimum down payment is 3.5% of the purchase price with a credit score of 580 or higher. On a $350,000 home, that's $12,250. The entire down payment can come from gift funds — a parent, sibling, employer, or even a government down payment assistance program. If your credit score is between 500 and 579, FHA requires 10% down. Closing costs are separate from the down payment, but the seller can contribute up to 6% of the purchase price toward your closing costs.
Yes, and honestly I wish more borrowers knew about this. FHA allows financing on 1 to 4 unit properties as long as you occupy one of the units as your primary residence for at least twelve months. You can use the rental income from the other units to help you qualify. I've helped borrowers buy fourplexes with 3.5% down and end up cash-flow positive from day one. It's one of the best wealth-building strategies available to someone with limited capital.
If you put less than 10% down, FHA mortgage insurance stays for the life of the loan — you cannot cancel it the way you can with conventional PMI. The most common exit strategy is to refinance into a conventional loan once you reach 20% equity and your credit score supports conventional pricing. If you put 10% or more down, the annual MIP drops off after 11 years. I plan for this with every FHA borrower — we set a reminder to review your refinance options once the math makes sense.
For 2026, the FHA loan limit for a single-family home in Maricopa County (covering Gilbert, Mesa, Chandler, Scottsdale, and Phoenix) is $557,750. The national floor is $541,287 and the high-cost ceiling is $1,249,125 for a single unit. Multi-unit limits are higher. Limits vary by county, so use HUD's official lookup tool to find your specific county's limits. If your purchase price exceeds the FHA limit, we can look at conventional or jumbo loan options.
Every lender has different FHA overlays — their own internal rules layered on top of FHA's guidelines. One lender might require a 640 credit score while another accepts 580. One might cap your DTI at 45% while another allows 50%. As a broker, I have access to dozens of FHA lenders and can match you to the one whose overlays work best for your situation. A bank can only offer you their own program with their own restrictions. Read more about why the broker model works better for most borrowers.
A typical FHA purchase closes in 30 to 45 days from contract. At The Starks Team, I pre-underwrite every file before submission, which means I anticipate most conditions upfront and avoid delays. In many cases we close on time or early. The FHA appraisal is usually the longest lead time — it includes health and safety checks beyond a conventional appraisal, and can take 7 to 14 days depending on your market. Starting the process early with a thorough pre-approval gives us the most runway.
Let's Figure Out If FHA Is the Right Fit
Every borrower's situation is different. I'll run your numbers on FHA and conventional, show you both scenarios side by side, and give you an honest recommendation — not a sales pitch.