What Is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. That insurance lets approved lenders offer more flexible terms than conventional loans — lower down payments, lower credit score minimums, and more lenient debt-to-income requirements.
FHA doesn't lend money directly. You apply through an FHA-approved lender like Bayou Mortgage. The FHA sets the rules; your lender handles the process and closes the loan.
FHA is a loan type, not a lender
Because FHA insures the loan against default, your lender takes on less risk — which is why they can approve borrowers who wouldn't qualify for a conventional mortgage. The trade-off is mortgage insurance, which you pay as part of the loan.
Who FHA Is Built For
When Conventional May Be Better
FHA Loan Requirements
FHA has some of the most flexible qualification standards in the mortgage industry — but there are real thresholds to meet.
Lender overlays may apply
FHA sets minimums — individual lenders can apply stricter requirements on top of those. Bayou Mortgage works to qualify you to FHA guidelines, not arbitrary internal thresholds.
FHA Credit Score Requirements
Your credit score determines your down payment requirement and the rate you'll qualify for. FHA uses your middle score from the three bureaus. With two borrowers, the lower middle score is used.
Full options available
Qualify for best FHA rates. May also be competitive for conventional — worth running both scenarios.
FHA minimum for 3.5% down
You qualify for full FHA program benefits. Rate may be slightly higher than 620+ borrowers.
FHA available with larger down payment
FHA still allows this range but requires 10% down. Fewer lenders offer this tier.
Below FHA minimum
FHA does not allow loans below 500. Most borrowers can reach 580 within 6–12 months with a focused plan.
FHA Down Payment & Closing Costs
At 3.5% down, a $250,000 home requires just $8,750 — and that money can come from multiple sources, including gifts and assistance programs.
Acceptable Down Payment Sources
Down Payment by Purchase Price
FHA Mortgage Insurance Premium (MIP)
FHA mortgage insurance is the trade-off for flexible qualification. You pay it in two forms: an upfront premium at closing and an annual premium collected monthly.
Upfront MIP (UFMIP)
1.75% of the base loan amount — almost always rolled into the loan balance. On a $250,000 loan, that's $4,375 added to your balance, not paid out of pocket.
It's a flat rate on every FHA loan regardless of credit score, down payment, or term.
Annual MIP (Monthly)
For most 30-year FHA loans with less than 10% down, the annual MIP is 0.55% divided into monthly payments.
On a $250,000 loan: approximately $115/month added to your payment.
When does MIP go away?
If you put less than 10% down, annual MIP stays for the life of the loan. Put 10%+ down and it drops off after 11 years. Many borrowers plan to refinance into a conventional loan at 20% equity to eliminate MIP — Bayou Mortgage can help you map that timeline.
Benefits of an FHA Loan
FHA loans have helped more Americans buy homes than any other government mortgage program.
Low Down Payment
3.5% minimum — and that can come from gifts, grants, or DPA programs.
Flexible Credit
580 minimum. Built for buyers who are creditworthy but don't have a perfect score.
Competitive Rates
FHA rates are often lower than conventional for sub-700 credit scores.
Gift Funds OK
100% of the down payment can come from a family member's gift.
Streamline Refi
Existing FHA borrowers can refinance with minimal paperwork and no new appraisal.
Seller Concessions
Sellers can contribute up to 6% of the purchase price toward your closing costs.
FHA vs. Conventional Loan
How the two programs compare on the factors that matter most. See the full comparison →
| Factor | FHA Loan | Conventional |
|---|---|---|
| Min. Credit Score | 580 (3.5% down) | 620–640 |
| Min. Down Payment | 3.5% | 3–5% (PMI if <20%) |
| Max DTI | Up to 57% | 43–50% |
| Mortgage Insurance | MIP for life (if <10% down) | PMI drops at 20% equity |
| Gift Funds | 100% allowed | Allowed with restrictions |
| Seller Concessions | Up to 6% | Up to 3% (>90% LTV) |
| Investment Properties | Not allowed | Allowed |
| Best For | Lower credit, limited savings | Strong credit, 20%+ down |
How to Apply for an FHA Loan
The FHA process is straightforward with the right lender. Here's what to expect from start to close.
Get Pre-Approved
We pull credit, verify income and assets, and issue a pre-approval letter — usually within 24 hours. This shows sellers you're a serious, qualified buyer.
Find Your Home
Shop with confidence. The property must meet FHA minimum property standards — your appraiser will flag any issues during the appraisal.
Submit Your Documents
Pay stubs, W-2s, two years of tax returns, two months of bank statements. Bayou Mortgage's processor guides you through exactly what's needed.
Underwriting & Appraisal
The underwriter reviews your file and the FHA appraisal confirms value and property condition. Most files clear underwriting in 3–5 business days.
Close on Your Home
Sign your closing docs, wire your down payment and closing costs, get your keys. Average close time: 21–30 days from completed application.
Ready to Get Pre-Approved?
Start the process today — no pressure, no obligation. We'll tell you exactly where you stand.
FHA Loan FAQ
Straight answers to the questions we hear most often.