The FHA 203(b) Mortgage Insurance Program is the centerpiece of all FHA mortgage insurance programs

FHA's 203(b) mortgage insurance program, also known as the Basic Home Mortgage Loan, is the centerpiece of all FHA mortgage insurance programs for 1 to 4 unit residential properties. This includes real estate such as single-family homes, duplexes, condos (individual units) and manufactured homes.

First-time homebuyers

What makes the FHA program good for first-time home buyers are the favorable credit score and down payment requirements: you can become eligible for an FHA loan with as little as 3.5% down payment and a credit score of 580 or higher (you can even be eligible with credit scores as low as 500 with a 10% down payment). Note that you don't have to be a "first-time" home buyer to be eligible. You can use an FHA loan for your next home purchase as well. It just happens that the FHA program is often used to assist first-time homebuyers.

Where to apply for an FHA mortgage

Many lenders offer FHA loans. You can find FHA-approved lenders in your area at the HUD.gov website. Or you can try one of these reputable online lenders:

• Rocket Mortgage
• Quicken Loans
• Guaranteed Rate

Mortgage insurance premiums

The only downside, if there was one, to FHA loans is that you have to pay mortgage insurance premiums on the loan. This insurance is what makes the whole program possible. The insurance premiums that you pay go into a big fund that is used to help offset losses that the lender would incur when someone defaults on their mortgage. You'll need to pay an up front insurance premium (called "UFMIP", or "up front mortgage insurance premium") as well as a monthly premium ("MIP" or simply "mortgage insurance premium"). The up front premium is always 1.75% of the loan amount (e.g., $1,750 for each $100K loan). The monthly premium depends on how much you put down. Typical premiums can be 0.85% (less than 1%) per year (divided by 12 for the monthly cost). For example, a $400000 loan with a 0.85% mortgage insurance premium would be $3400 per year, or $283 per month.

Income limits

There are no income limits or restrictions. This means that you won't be disqualified if you have a high income salary. Some other non-FHA programs, like the Home Possible mortgage, that are geared towards first time buyers do have income limitations. So this makes the FHA loan quite attractive to many borrowers.

Loan limits

FHA mortgages do have loan limits. You can't borrow above this limit. The FHA limit is defined by the area that the home or property is located. In general, the more expensive areas of the United States will have higher FHA loan limits. For example, in pricey Fairfax County, Virginia, the FHA loan limit for a single-family home was $1,149,825 in 2024, whereas in Harrisonburg, Virginia (home of James Madison University) the FHA loan limit was just $498,257. You can see that even within the same state, FHA loan limits can vary quite a bit. The limit in Fairfax County, Virginia is literally double the limit 2 hours away in Harrisonburg, Virginia!

FHA loan limits increase yearly to keep up with the rising cost of housing and inflation. We have a special section that lets you find out what the FHA loan limit is in your county and state.
See FHA loan limits by county

Mortgage counseling

Mortgage counseling is not required in order to get an FHA loan. Some other loan programs do require counseling or completing some basic mortgage education in order to qualify. While not required, it is recommended that borrowers get educated and possibly utilize a HUD-approved counseling agency. The office of Housing and Urban Development (aka the HUD) sponsors housing counseling agencies in areas near you to provide free or low cost advice. You can also try calling the HUD's automated response system at: (800) 569-4287.

You must live in the home (owner-occupied)

The FHA loan program is limited to "owner-occupied" primary residences. In other words, if you're applying for an FHA loan, it has to be for a home that will be your primary residence in which you live. You can also use an FHA loan to refinance an existing mortgage on your home. In general, the FHA 203(b) program does not allow you to have a secondary residence. In some cases it's allowed, but you may have only one secondary residence at any time to be eligible.

A secondary residence might be permitted if there is no affordable rental housing for lease that meets the needs of the family within a reasonable commuting distance of work. For example, let's say you already have a primary home but you have to take a new job that is in another city far away. You want to live near your new job so you try to rent an apartment but can't find anything affordable. You then decide to try and buy another home near your job instead. Since you still have the first home, the new home would be considered a secondary residence. Normally FHA wouldn't allow a secondary home, but in this specific case, you might still qualify since you can't find affordable rental housing near your job.

FHA restrictions on the source of your down payment

Fortunately, the FHA allows quite a good number of valid down payment sources. The acceptable sources usually fall into the following 6 categories:

1. Cash and bank account funds (checking and savings accounts)
2. Gifts
3. Investment funds
4. Funds you received from the sale of property (selling you car, selling another real estate property, selling any personal property)
5. Loans and grants
6. Employer assistance

Using a gift as part of your down payment

If you use a gift (like your parents gifting you money for a down payment), note that there must be no expected or implied repayment of the funds to the donor (e.g., your parents). Also, in order to be valid, the gift must come from one of the following sources:

• A relative of the borrower
• The borrower's employer or labor union
• A close friend with a clearly defined and documented interest in the borrower
• A charitable organization
• A governmental agency or public entity that has a program providing home ownership assistance to (a) low- and moderate-income families, or (b) first-time homebuyers

Also, the party giving you the cash gift can't be one of the following:

• The seller
• The real estate agent
• The builder, or
• An associated entity

Gifts from these sources are considered "inducements to purchase", and must be subtracted from the sales price.