FHA Loan
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. It allows down payments as low as 3.5% and credit scores from 580. Self-employed borrowers qualify on the same two-year tax-return documentation as conventional — but with more flexible underwriting.
By Sunrise Lending
About this program
What is a FHA Loan?
How it works — step by step
Take the 60-second check-in
Five questions about your credit, down payment, and income structure. FHA is often the right path for first-time buyers or anyone with a lower credit score or limited down payment — the matcher confirms whether FHA or a Non-QM alternative serves you better.
Gather income documentation
For self-employed borrowers: two years of personal and business tax returns, a year-to-date P&L, and 2–3 months of bank statements. For W-2 borrowers: two years of W-2s and recent pay stubs. FHA processes are the same as conventional for documentation.
Licensed MLO confirms FHA eligibility
A Sunrise officer confirms credit, DTI, and down payment requirements. FHA has specific property condition standards — the officer identifies any appraisal issues common to FHA that might affect your specific property.
FHA underwriting with government backing
FHA loans run through automated underwriting and are insured by HUD/FHA. The government backing allows lenders to accept lower down payments and credit scores than conventional. Mandatory MIP adds to the monthly cost.
Close and fund
FHA loans typically close in 30–45 days. Sellers in competitive markets sometimes prefer conventional offers over FHA because of appraisal condition requirements — your officer will advise on offer strategy.
What it usually looks like
- Credit score 580+ for 3.5% down; 500–579 for 10% down (program varies by lender)
- Down payment as low as 3.5% (gift funds fully allowed)
- Two years of tax returns for self-employed borrowers (same as conventional)
- Debt-to-income ratio ≤ 43% (some lenders allow up to 50% with strong compensating factors)
- Primary residence only — FHA does not finance investment properties
- Upfront MIP: 1.75% of loan amount at closing (can be financed into the loan)
- Annual MIP: 0.55–1.05% of loan balance per year, paid monthly
- Property must meet FHA minimum property standards (MPS); appraisal required
How it compares
| Factor | FHA Loan | Conventional | Bank Statement (Non-QM) |
|---|---|---|---|
| Min. down payment | 3.5% (580+ credit) | 3–5% | 10% |
| Min. credit score | 580 (3.5% down); 500 (10% down) | 620 | ~640 |
| Mortgage insurance | MIP always (upfront + annual) | PMI if <20% (cancels) | None (not agency) |
| Income doc (self-employed) | 2 years tax returns | 2 years tax returns | 12–24 months bank statements |
| Property eligibility | Primary only; must meet HUD MPS | All primary, some investment | Primary, second, investment |
| Best for | Lower credit + low down payment | Standard W-2 borrowers | SEI whose taxes understate income |
Program terms, LTV limits, and documentation requirements vary by lender. As of June 2026. Not a commitment to lend.
Real scenarios
First-time buyer, Atlanta GA
A 29-year-old teacher with a 615 credit score had saved $22K — not enough for 20% down on a $350K home, but enough for 3.5% FHA down plus closing costs. Her W-2 income was straightforward. FHA cleared automated underwriting; she closed in 33 days. Monthly MIP added $160/month — a trade-off she accepted in exchange for homeownership at lower credit.
- Credit score
- 615
- Down payment
- 3.5% ($12,250)
- Purchase price
- $350K
- Monthly MIP
- ~$160
Illustrative scenario. Not a commitment to lend.
Self-employed sole proprietor, Portland OR
A freelance graphic designer had two years of Schedule C returns. Her net income after deductions was $58K/year. FHA allowed slightly more flexible DTI treatment with compensating factors — 3 months of reserves and a low credit utilization rate — and approved the file where conventional had a tight DTI. She purchased at $320K with 5% down.
- Income documentation
- 2 years Schedule C
- Net qualifying income
- $58K/yr
- Down payment
- 5%
- Purchase price
- $320K
Illustrative scenario. Not a commitment to lend.
Who this fits
Common questions
- What is an FHA loan?
- A mortgage insured by the Federal Housing Administration (FHA), a division of HUD. FHA insurance lets lenders offer lower down payments and accept lower credit scores than conventional programs. The borrower pays mortgage insurance premiums (MIP) in exchange.
- Can a self-employed borrower get an FHA loan?
- Yes — FHA uses the same two-year tax-return standard as conventional for self-employed borrowers. The advantage is more flexible DTI treatment and lower minimum down payment. The disadvantage is permanent MIP and primary-residence-only restriction.
- How much is the FHA mortgage insurance premium (MIP)?
- Upfront MIP is 1.75% of the loan amount, paid at closing or financed into the loan. Annual MIP ranges from 0.55% to 1.05% of the outstanding balance per year, paid monthly. Unlike PMI, FHA MIP does not cancel until you refinance or the loan is paid off (for most borrowers).
- What is the minimum credit score for an FHA loan?
- FHA guidelines allow 580+ for 3.5% down and 500–579 for 10% down. Most lenders apply overlays and require 580+ as a practical minimum. The check-in asks for your score band so the matcher shows you programs your profile qualifies for.
- What is the FHA loan limit for 2026?
- FHA loan limits are set annually by HUD based on local median home prices. For 2026, most areas are at or near $498,257; high-cost areas reach up to $1,149,825. Your officer confirms the limit for your specific county.
- Can FHA be used for investment property?
- No. FHA requires the property to be your primary residence — the home you live in. FHA cannot be used to purchase investment properties or vacation homes. DSCR loans are the investment-property alternative.
- What are FHA minimum property standards?
- HUD requires FHA-financed properties to meet safety, security, and structural soundness standards. Issues like peeling lead paint, roof damage, and non-functional systems can trigger repair requirements. Conventional and Non-QM appraisals are less prescriptive.
- Can I use gift funds for an FHA down payment?
- Yes — FHA fully allows gift funds for the down payment and closing costs, with a gift letter documenting that repayment is not required. This is one of the key advantages of FHA over conventional, where gift-fund rules are more restrictive at lower down payments.
Not sure if FHA Loan is the right fit?
Take the 60-second check-in. The matcher narrows you to the right path; a licensed mortgage officer reviews before anything formal moves.
Related resources
Sources
- 1.U.S. Department of Housing and Urban Development (HUD). FHA Single Family Housing Policy Handbook (HUD Handbook 4000.1) — Accessed June 2026
- 2.U.S. Department of Housing and Urban Development (HUD). FHA Mortgage Limits — Accessed June 2026
- 3.Consumer Financial Protection Bureau (CFPB). What is an FHA Loan? — Accessed June 2026
FHA loans are insured by the U.S. Federal Housing Administration (HUD). MIP rates, loan limits, and property standards are set by HUD and subject to change. Lender overlays may apply. Final approval, terms, and rates are determined by the lender after underwriting. Not a commitment to lend.
Sunrise Lending · Equal Housing Opportunity. Matching rules are written and reviewed by licensed mortgage professionals. All loan decisions are made by licensed mortgage professionals. Not a commitment to lend. Loan approval subject to underwriting guidelines. This is not financial advice.