An FHA loan is a mortgage insured by the Federal Housing Administration that allows 3.5% down with a credit score of 580 or higher (10% down between 500 and 579), higher debt ratios than conventional, and shorter waiting periods after credit events. The trade-off is mortgage insurance: an upfront premium financed into the loan plus an annual premium paid monthly, which on most loans under 10% down stays for the life of the loan. Sellers can contribute up to 6% toward closing costs, and FHA loans are assumable.
Who this is for
Buyers with thinner or recovering credit, debt ratios above conventional limits, a recent credit event, or a down payment that comes partly from a gift or an assistance program. Also non-occupant co-borrower situations, where a parent helps a child qualify.
How qualification works
FHA underwriting uses HUD's TOTAL Scorecard plus lender overlays. The insurance is what buys the flexibility: with the government absorbing part of the risk, the system tolerates ratios and scores that would fail elsewhere. Four mechanics worth knowing:
- Minimum investment. The 3.5% must come from your own funds, a documented gift, or an approved assistance program, never from the seller.
- Mortgage insurance. Upfront premium (financed) plus annual premium (monthly). Under 10% down it generally lasts the life of the loan; the exit is a refinance into conventional once you have 20% equity.
- Property standards. FHA appraisals check condition as well as value, and the 90-day flipping rule restricts buying a home the seller acquired less than 90 days earlier.
- Loan limits. Set by county; Clark County and Bexar County differ. I confirm the current figure on your file.
What I evaluate before it goes to underwriting
- Whether FHA is the right bridge or conventional pricing is actually reachable with a small fix
- Gift funds: who, how much, and the paper trail before the money moves
- Variable and overtime income history, since FHA has its own averaging rules
- A non-occupant co-borrower's income and credit, and the occupancy rules that come with one
- The property: age, condition, flip timing, and whether it is a manufactured home with FHA-eligible foundation and titling
What documentation is needed
- Same income and asset documents as conventional
- Explanation letters for any credit events, with dates
- Gift letter and donor bank statement if a relative helps
- DPA award or reservation paperwork if an assistance program is layered on; full checklist
Send everything as complete PDFs. Why, and how.
Common underwriting issues
- Appraisal repair conditions on older homes: peeling paint, missing handrails, roof life
- Flip timing: contracts written inside the seller's 90-day window
- Gift funds deposited before the letter and source were documented
- Manufactured homes without an FHA-acceptable permanent foundation certification
- Debt ratio creeping over the limit once taxes and insurance are estimated correctly
Down payment, reserves and pricing
3.5% down with a 580 or higher score; 10% between 500 and 579, subject to lender overlays. Upfront mortgage insurance premium is financed; annual premium is paid monthly and, under 10% down, generally for the life of the loan. Sellers may contribute up to 6% of the price toward closing costs. Reserves are not typically required on one- and two-unit purchases. FHA pairs cleanly with Nevada Home Is Possible and Texas TSAHC and TDHCA assistance, which is where most of my 3.5%-down buyers actually get their 3.5%.
Nevada and Texas considerations
Nevada's Home Is Possible first-time-buyer track and HIP-DPA both run on FHA first mortgages; the live board on the DPA page shows today's program rates. In Texas, the Comptroller's homestead exemption rose to $140,000 for 2026, which lowers the tax escrow that often decides whether an FHA debt ratio fits.
Example scenario
A first-time buyer in Cibolo with a 640 score, two years of steady income, and $9,000 saved, buying at $260,000. FHA at 3.5% needs $9,100 down, so a TSAHC assistance layer covers the gap and part of closing. The seller credits 3% because the house has sat 80 days. We map the refinance-out point at roughly 20% equity so the mortgage insurance has an end date on paper from day one.
Common questions
Does FHA mortgage insurance ever go away?
With less than 10% down, generally not on the FHA loan itself; the path out is refinancing into a conventional loan once you have 20% equity. With 10% or more down it drops after 11 years.
Can a parent co-sign an FHA loan?
Yes. FHA allows non-occupant co-borrowers, usually family, with their income and debts counted alongside yours.
Can I buy a manufactured home with FHA?
Yes, if it is on a permanent foundation that meets HUD standards, titled as real property, and built after June 1976. That certification is the file's critical path.
What is the FHA flip rule?
A property the seller has owned for less than 90 days is generally not eligible for FHA financing; 91 to 180 days can trigger a second appraisal when the resale price has jumped. It matters most in a market with active flippers.
Sources
HUD Handbook 4000.1 · FHA mortgage limits · FHA single family programs
Guidelines are the agencies'; lenders add overlays and change them. Every figure on this page was checked on the review date below and is confirmed again against your file before it goes in a quote.
