Short answer. An FHA loan is a mortgage insured by the Federal Housing Administration. It requires as little as 3.5% down and accepts FICO scores as low as 580. FHA loans accounted for approximately 15-20% of U.S. originations in 2024.
The Federal Housing Administration (FHA) was created by the National Housing Act of 1934 to encourage homeownership during the Great Depression. FHA loans are not made by the FHA itself — they're made by private lenders and insured by the FHA against default.
FHA loan requirements (2024)
- Down payment: 3.5% minimum (with 580+ FICO); 10% minimum with 500-579 FICO
- Credit score: 500 minimum (580+ for the 3.5% down option)
- Debt-to-income: Up to 56.99% with manual underwriting; typically 43% via automated
- Property: Owner-occupied primary residence; 1-4 unit allowed
- Loan limit: Up to $524,225 in standard areas, $1,209,750 in high-cost areas (2025)
FHA insurance premium (MIP)
- Upfront MIP: 1.75% of loan amount, financed into the loan
- Annual MIP: 0.55% on most loans (paid monthly)
- Duration: Life of the loan if down payment is <10%; cancellable at year 11 if down >10%
Who uses FHA loans
FHA loans are dominant for first-time buyers, lower-credit-score borrowers, and buyers with limited down-payment funds. Roughly 80% of FHA-loan borrowers are first-time buyers, and the median FICO score on FHA originations is 670 — vs. 750+ on conventional originations.
The FHA's market role
FHA insurance has played a counter-cyclical role in U.S. housing finance: when conventional underwriting tightens (as during 2008-2010), FHA's market share rises sharply (peaking at roughly 25% of originations in 2010). When conventional credit eases, FHA's share moderates back to the 12-18% range.
Sources
U.S. Census Bureau Survey of Construction; National Association of Realtors Existing Home Sales report; Freddie Mac Primary Mortgage Market Survey; National Bureau of Economic Research Business Cycle Dating Committee.