FHA Loan Terms

FHA loans are government-insured mortgages administered by the Federal Housing Administration (a division of HUD) that allow buyers to purchase homes with as little as 3.5% down and credit scores as low as 580 — compared to the 5–20% down and 620+ credit score typically required for conventional loans. The tradeoff is mortgage insurance: FHA borrowers pay an upfront premium of 1.75% of the loan amount plus an annual premium of 0.55%, and — unlike conventional PMI, which drops off at 20% equity — FHA mortgage insurance lasts for the life of the loan for most borrowers. On a $400,000 FHA loan, that's $7,000 upfront plus $2,200/year in MIP that never goes away. FHA loans make homeownership accessible for first-time buyers and those with imperfect credit, but the permanent MIP cost means they're often worth refinancing into a conventional loan once you've built sufficient equity and credit history to qualify.

FHA loans are government-insured mortgages administered by HUD/FHA with lower down payments and more flexible credit requirements than conventional loans.

Legal Authority

• 12 U.S.C. § 1709 — FHA mortgage insurance (National Housing Act Section 203(b)): Secretary may insure home loans from approved lenders; sets loan limits tied to local median home prices (floor and ceiling amounts); limits mortgage amount for single-family, duplex, triplex, and fourplex properties
• 12 U.S.C. § 1710 — Payment of insurance claims: HUD pays lender insurance claims when a borrower defaults (misses 3+ payments or faces foreclosure); lender may assign the mortgage to HUD and receive debentures
• 12 U.S.C. § 1715v — Mortgage insurance for housing for elderly persons (Secretary may insure mortgages for housing designed for elderly occupants; special terms including lower down payments and longer amortization)
• 12 U.S.C. § 1715y — Mortgage insurance for condominiums (Secretary may insure mortgages covering individual condominium units; blanket mortgages for condominium projects; sets conditions for project approval and unit-level insurance)
• 12 U.S.C. § 2601-2610 — Real Estate Settlement Procedures Act (RESPA): governs mortgage closing disclosures, prohibits kickbacks and unearned referral fees (§ 2607), limits escrow deposits (§ 2609), and prohibits charges for required disclosure forms (§ 2610)

Implementing Regulations (CFR)

• 12 CFR Part 1024 (Regulation X) — RESPA implementation for FHA and all federally related mortgage loans:

  • 12 CFR 1024.5 — Coverage of RESPA (applies to all FHA-insured loans)
  • 12 CFR 1024.14 — Prohibition against kickbacks and unearned fees (referral fee ban for settlement services)
  • 12 CFR 1024.15 — Affiliated business arrangements (disclosure requirements)
  • 12 CFR 1024.17 — Escrow accounts (limits on initial deposits, annual analysis requirements)
  • 12 CFR 1024.20 — List of homeownership counseling organizations (lender must provide within 3 days of application)
  • 12 CFR 1024.33 — Mortgage servicing transfers (notice requirements when servicing changes hands)

• 12 CFR Part 1026 — Mortgage disclosure requirements (Loan Estimate and Closing Disclosure content for FHA-insured loans)

• 12 CFR 226.43 — Appraisals for higher-priced mortgage loans (appraisal requirements applicable to FHA lending)

• 12 CFR 43.13 — Exemption for qualified residential mortgages (credit risk retention rules; FHA-insured loans qualify as QRM)

• 24 CFR Part 200 — Introduction to FHA Programs (162 sections across 14+ subparts — the cross-program requirements applicable to multiple FHA mortgage insurance programs, covering both single-family and multifamily lending):

  • Subpart A — Application, Commitment, and Endorsement Requirements (65 sections — largest): governs the complete lifecycle of an FHA multifamily or healthcare facility mortgage insurance commitment; § 200.10 — lender requirements (references Part 202 approved lender standards); § 200.100 — insurance endorsement mechanics (initial and final endorsement may be simultaneous, or initial endorsement for construction with final at completion); § 200.101 — mortgagor lien certificate (mortgagor must certify at final endorsement that the mortgage is a first lien covering the entire project, with no superior liens except permitted exceptions); § 200.105 — mortgagor supervision (as long as FHA is insurer, Commissioner regulates mortgagor via regulatory agreement or other means — this is the mechanism allowing HUD to control use, occupancy, and financial management of insured multifamily projects); § 200.120 — delinquency reporting (multifamily mortgagees must electronically report mortgage delinquencies, defaults, reinstatements, and assignment elections to HUD on a monthly basis)
  • Subpart H — Participation and Compliance Requirements (7 sections): governs who may participate in FHA programs; persons with outstanding judgments, unresolved HUD findings, or adverse actions from other federal housing agencies may be restricted from participating; applies to mortgagors, contractors, consultants, and other participants in FHA-insured projects
  • Subpart M — Affirmative Fair Housing Marketing (9 sections): all participants in FHA programs must adopt and implement affirmative marketing plans designed to reach potential applicants "least likely to apply" — a requirement that goes beyond Fair Housing Act non-discrimination to affirmatively market to underserved populations; plans must identify target markets, outreach methods, and recordkeeping; applies to FHA-insured multifamily development and marketing
  • Subpart S — Minimum Property Standards (32 sections): HUD Minimum Property Standards (MPS) apply to all housing constructed under FHA mortgage insurance programs; § 200.925 — all HUD-insured housing must meet or exceed HUD MPS; § 200.926 — standards for one and two family dwellings: must comply with the applicable model building code (IBC, IRC, or equivalent) plus specific HUD requirements; § 200.925a — multifamily standards require compliance with the applicable HUD handbook; when state or local building codes meet HUD's requirements (as determined through a code review process), compliance with the local code satisfies MPS; § 200.925b and § 200.926a — the specific construction categories HUD evaluates in local code review (fire safety, structural, mechanical, plumbing, electrical, energy conservation, accessibility); the practical effect: a property can fail FHA appraisal not for market value reasons but for physical defects that would make it ineligible under MPS — missing handrails, exposed wiring, inadequate egress, defective roof — creating a higher bar than conventional appraisal
  • Subpart Y — Multifamily Accelerated Processing (MAP) Lender QA Enforcement (10 sections): MAP is HUD's underwriting delegation program for multifamily FHA loans; approved MAP lenders may commit FHA insurance without HUD's pre-commitment underwriting review; in exchange, MAP lenders bear responsibility for underwriting quality; Subpart Y provides the enforcement framework — HUD may place MAP lenders on probation, restrict their MAP authority, or suspend MAP approval for underwriting deficiencies

• 24 CFR Part 203 — Single Family Mortgage Insurance (243 sections across 3 subparts — the primary operational regulation for FHA Section 203(b) home loans, covering underwriting, the mortgage insurance contract between HUD and lenders, and servicer obligations for delinquent borrowers):

  • Subpart A — Eligibility Requirements and Underwriting Procedures (62 sections): property eligibility and appraisal standards (§ 203.12 — insurance available for proposed, under-construction, and existing homes); builder's warranty requirements for new construction (§ 203.14); maximum mortgage amounts by area (§ 203.18) — FHA loan limits set annually based on median home prices; solar energy systems can increase the insurable loan amount (§ 203.18a); qualified mortgage (QM) requirement — FHA loans must meet ATR/QM standards (§ 203.19); interest rate must be agreed in writing; fully amortizing loans; flood insurance required in Special Flood Hazard Areas (§ 203.16a)
  • Subpart B — Contract Rights and Obligations (146 sections — largest): the FHA insurance contract between HUD and the approved lender. Upfront mortgage insurance premium (UFMIP) collection and remittance to HUD; annual MIP paid monthly; conditions under which HUD pays a claim on a defaulted insured mortgage; conveyance of property to HUD after foreclosure (§ 203.355 — lender must convey with good and marketable title); property condition requirements for conveyance; assignment of mortgage to HUD as an alternative to foreclosure (§ 203.350); loan modification authority (§ 203.346 — lenders may modify delinquent FHA loans); partial claim — subordinate note to HUD to cure arrearages and reinstate a delinquent loan (§ 203.371 — a key COVID-era and post-COVID loss mitigation tool)
  • Subpart C — Servicing Responsibilities (35 sections): loss mitigation hierarchy — servicers must evaluate all FHA loss mitigation options before initiating foreclosure (§ 203.605 — this "waterfall" requirement includes informal forbearance, formal forbearance, repayment plan, loan modification, pre-foreclosure sale, and deed-in-lieu); face-to-face interview with delinquent borrower required within 90 days of default when feasible (§ 203.604); reporting delinquencies to HUD via monthly reports; hazard insurance requirements; prompt crediting of payments; annual escrow analysis

• 24 CFR Part 291 — HUD-Acquired Single Family Property Disposition (the regulatory framework governing what HUD does with REO properties it acquires after paying insurance claims on defaulted FHA loans — covering competitive sales, targeted discount programs, and disposition of homes to serve special populations):

  • Subpart B — General Provisions: defines "HUD-acquired property" as a single-family home HUD acquires by paying an FHA insurance claim and accepting the conveyance of title; establishes that HUD's goal is to dispose of properties quickly, at fair market value or better, while promoting neighborhood stabilization and homeownership; properties are listed via HUD Home Store (hudhomestore.hud.gov) for public sale
  • Subpart C — Competitive Sales: the standard disposition method; properties are listed on the open market for 15-30 days in "owner-occupant priority" status before investors may bid; HUD accepts highest-net-value sealed bids; owner-occupants (those who will live in the home as a primary residence) have exclusive bidding rights during the priority period — a built-in advantage over investment buyers designed to prioritize homeownership; unsold properties may be relisted at reduced prices; closing typically occurs within 60 days of accepted bid
  • Subpart D — Direct Sales: HUD may sell properties directly (without competitive bidding) to governmental entities, nonprofit organizations, and certain other approved purchasers at discounts for use in affordable housing, transitional housing, or community development; direct sales must serve a public purpose and require HUD approval; used primarily when properties need substantial rehabilitation or when neighborhood stabilization objectives justify below-market pricing
  • Subpart E — Disposition of HUD-Acquired Properties to Provide Housing for Homeless Persons: properties may be made available to nonprofit organizations that will use them to provide transitional housing for homeless individuals and families; eligible nonprofits apply through HUD regional offices; discounts of up to 30% below appraised value may be offered; properties must be used for homeless housing for a minimum period (typically 5 years); provides a limited supply of affordable transitional housing units at below-market cost to qualifying service providers
  • Subpart F — Good Neighbor Next Door (GNND) Sales Program (§§ 291.500–291.545 — 14 sections): the most widely known HUD REO program — offers eligible buyers a 50% discount off the HUD-listed price on owner-occupied single-family homes in HUD-designated revitalization areas; eligible buyers are: (1) law enforcement officers employed full-time by a federal, state, local, or tribal government agency; (2) K-12 teachers employed full-time by a state-accredited school; (3) firefighters and emergency medical technicians employed full-time; buyer must agree to occupy the home as their sole residence for 36 months after closing; GNND properties are listed for 7 days for exclusive purchase by eligible buyers before going to general market; the 50% discount is structured as a "silent second mortgage" to HUD — if the buyer moves before 36 months, they owe HUD the discount amount with interest; for public servants priced out of homes in their work communities, GNND is one of the most valuable homeownership subsidies in the federal housing toolkit — a $300,000 home lists for $150,000 if in a revitalization area
  • Subpart G — HUD-Held Mortgage Loan Sales: when FHA borrowers default, lenders have the option to assign the mortgage to HUD rather than conveying the property; HUD then holds the mortgage and may offer loss mitigation or eventually foreclose; this subpart governs HUD's disposition of these held mortgages through bulk sales to investors or servicers; mortgage note sales generate recovery for the FHA insurance fund while transferring servicing responsibility to private entities

  Recent rulemakings: HUD proposed streamlining the GNND program in 2024 to expand the list of eligible revitalization area designations and reduce the compliance monitoring burden on buyers who complete their 36-month occupancy commitment.

• 24 CFR Part 201 — Title I Property Improvement and Manufactured Home Loans: the FHA loan program that predates modern mortgage insurance — Title I was created in 1934 alongside FHA itself to finance home repairs and, later, manufactured home purchases without requiring a traditional first mortgage. Unlike FHA Section 203(b) purchase mortgages, Title I loans are unsecured consumer loans (no lien on real property required for smaller amounts) that lenders originate and FHA insures against default. Two distinct programs operate under Part 201:

  • §§ 201.10–201.11 — Loan limits and maturities (property improvement): property improvement loans may not exceed $25,000 for a single-family property (or $25,090 per unit in multifamily); loan terms run up to 20 years and 32 days; minimum term is 6 months; interest rate is negotiated between borrower and lender and fixed for the full term (§ 201.13 — no adjustable-rate Title I loans)
  • §§ 201.10–201.11 — Loan limits and maturities (manufactured home): manufactured home loans cover three categories: home-only loans (up to $69,678, up to 20 years), lot-only loans (up to $23,226, up to 15 years), and home-plus-lot combination loans (up to $92,904, up to 25 years); these are the primary FHA-insured financing vehicle for manufactured homes purchased separately from real property
  • § 201.20 — Property improvement loan eligibility: the borrower must have a legal interest in the property to be improved (ownership, long-term lease, life estate, or written permission from the owner); no minimum equity requirement — Title I can finance repairs on underwater or low-equity homes where 203(k) rehabilitation mortgages would not work; eligible improvements include structural alterations, repairs, heating and cooling systems, plumbing, electrical work, roofing, energy efficiency upgrades, accessibility modifications, and site improvements; cosmetic improvements (painting, landscaping) are generally ineligible
  • § 201.21 — Manufactured home loan eligibility: borrower must intend to occupy the manufactured home as the principal residence; home must comply with HUD's Manufactured Home Construction and Safety Standards (the HUD Code — see the "HUD" data plate inside the home); for home-only loans, the manufactured home need not be permanently affixed to a foundation — it may be on a rented lot; for combo loans, the borrower must own or be purchasing the lot
  • § 201.22 — Credit requirements: lenders must exercise prudence and diligence before approving a Title I loan; no specific minimum credit score is set by federal regulation, giving lenders flexibility, but FHA's credit guidelines and lender policies effectively establish thresholds; lenders who make FHA Title I loans must be HUD-approved institutions under 24 CFR Part 202
  • §§ 201.40–201.43 — Property improvement loan insurance: lenders submit claims to FHA when borrowers default; FHA pays 90% of the net loss (principal balance plus accrued interest minus any recovery from the borrower) — the 10% retention gives lenders a financial stake in underwriting quality
  • §§ 201.50–201.56 — Manufactured home loan insurance: FHA pays 90% of net loss on defaulted manufactured home loans; for lot loans, FHA pays 90% of appraised lot value; lenders must follow specific procedures for repossessing manufactured homes and disposing of them before making FHA insurance claims

  Title I property improvement loans fill a gap in the FHA toolkit: they reach homeowners who need repairs but don't have equity for a cash-out refinance or who need amounts too small for a full 203(k) rehabilitation mortgage. The manufactured home program is one of the only federal insurance programs for chattel (personal property) manufactured home loans — the financing gap for manufactured homes on rented lots is a significant affordable housing policy issue, since chattel loan interest rates typically run 2–3 percentage points above real-property mortgage rates. Recent rulemakings: The last major revision of Part 201 was in 1996. HR 964 (Property Improvement and Manufactured Housing Loan Modernization Act of 2025), introduced in the 119th Congress, would raise and index the loan limits (unchanged since the 1990s) and expand eligibility to finance accessory dwelling units.

• 24 CFR Part 220 — Mortgage Insurance and Insured Improvement Loans for Urban Renewal and Concentrated Development Areas (35 sections): the FHA program that insures mortgages and property improvement loans for housing located in areas designated for urban renewal, concentrated code enforcement, or slum and blight clearance under the National Housing Act § 220 (12 U.S.C. § 1715k). Section 220 financing was a central tool of the urban renewal era (1950s–1970s), when federal grants funded clearance of deteriorated neighborhoods and FHA § 220 insurance supported private mortgage lending in newly redeveloped areas. Today the program remains available for properties in HUD-designated urban renewal or concentrated development areas, though it has largely been superseded for new construction by § 221(d)(4) (workforce housing) and § 223(f) (existing multifamily refinance). Part 220 operates primarily by cross-referencing the operational requirements of other FHA programs. Key provisions:

  • § 220.251 — Single-family cross-reference: all single-family § 220 mortgages incorporate the full standards of 24 CFR Part 203 (FHA single-family mortgage insurance) — underwriting, appraisal, insurance premium, and claim procedures are identical; the § 220 designation broadens geographic eligibility to urban renewal areas where standard § 203 eligibility might otherwise be restricted by area condition requirements
  • § 220.252 — Forbearance of foreclosure: servicers of § 220-insured single-family mortgages in default may enter into forbearance agreements under the same authority as § 203 servicers (§§ 203.340–203.342); FHA's standard loss mitigation framework — including loan modification, special forbearance, and assignment to HUD — applies equally to § 220 borrowers
  • § 220.253 — Substitute mortgagors: a borrower may be released from personal liability on a § 220 mortgage if the mortgagee and HUD approve a creditworthy substitute mortgagor who assumes the loan; the same standards that govern § 203 assumptions apply — including credit review and, for older loans, due-on-sale clause considerations
  • § 220.350 — Home improvement loan cross-reference: property improvement loans under § 220 incorporate the improvement loan provisions of 24 CFR Part 203; eligible improvements must be substantial and permanent; loans may be for structural rehabilitation consistent with the urban renewal plan for the area
  • § 220.501 — Multifamily eligibility: multifamily project mortgages in urban renewal areas must satisfy the general eligibility standards of 24 CFR Part 200, Subpart A (new construction or substantial rehabilitation; principal amount limits; debt service coverage requirements)
  • § 220.751 — Multifamily mortgage cross-reference: multifamily § 220 mortgages incorporate the insurance terms of 24 CFR Part 207 (FHA rental housing mortgage insurance) — the claim procedures, insurance premium structure, regulatory agreements with owners, and HUD oversight provisions of Part 207 all apply to § 220 multifamily
  • §§ 220.801–220.804 — Improvement loan insurance endorsement: improvement loans in urban renewal areas receive an initial insurance endorsement from FHA at commencement (§ 220.801) and a final endorsement when all loan advances have been made and all conditions met (§ 220.802); from initial endorsement, both FHA and the lender are bound by the Part 220 insurance contract; insurance premiums include a first premium at initial endorsement and annual premiums thereafter (§ 220.804); late premiums (paid more than 15 days after the billing date) are subject to a late charge (§ 220.804a)

  The § 220 program's urban renewal roots mean it was often used in tandem with HUD Community Development Block Grant (CDBG) programs and Urban Development Action Grants (UDAG) — the combination of federal grant funding (for land clearance and infrastructure) plus FHA mortgage insurance (for private construction lending) was the standard urban renewal financing stack. Modern urban revitalization projects more commonly use New Markets Tax Credits, Low Income Housing Tax Credits (LIHTC), and HUD § 221(d)(4) financing, but § 220 insurance remains available for historically designated urban renewal areas meeting HUD qualification criteria.

HUD Mortgagee Review Board (24 CFR Part 25)

The Mortgagee Review Board (MRB) is FHA's primary enforcement body for policing the conduct of FHA-approved lenders. 24 CFR Part 25 governs the Board's composition, authority, and procedures for imposing administrative sanctions on mortgagees — lenders who originate, underwrite, or service FHA-insured loans.

• § 25.2 — Establishment: the Board is a statutory body within FHA (established by 12 U.S.C. § 1708(c)) consisting of the FHA Commissioner, the HUD General Counsel, the HUD Inspector General, and the HUD Assistant Secretary for Administration; the Commissioner chairs the Board
• § 25.3 — Definitions: "adequate evidence" means information sufficient to support a reasonable belief that a violation occurred; "lender" includes any entity that originates, underwrites, or services FHA-insured mortgages and holds or previously held FHA approval; "withdrawal" means permanent revocation of FHA lender approval
• § 25.5 — Administrative actions: the Board may issue a letter of reprimand (no hearing right), probation, suspension (temporary loss of FHA approval), withdrawal (permanent revocation), or civil money penalties; actions may be taken individually or in combination; probation imposes enhanced monitoring and reporting obligations without terminating approval
• § 25.6 — Grounds for administrative action: violations include transferring ownership or control without HUD approval; failing to comply with FHA regulations or HUD handbook requirements; submitting false information to HUD; engaging in fraudulent acts; failure to maintain adequate net worth or liquidity; inadequate quality control programs; discriminatory lending practices; or engaging in conduct that would cause loss to FHA's Mutual Mortgage Insurance Fund
• § 25.7 — Notice of violation: the Board Chairperson must issue written notice to the mortgagee's address of record at least 30 days before any administrative action (except suspension for fraud or emergency); the notice must state the violation and proposed action; the mortgagee may submit a written response within 30 days; the Board may accept additional information and hold an informal conference
• § 25.8 — Factors in determining sanctions: the Board weighs the severity of the violation; the mortgagee's history of compliance; economic impact on the mortgagee; the mortgagee's good faith; any remedial measures taken; the amount of harm or potential harm to HUD, borrowers, or the public; and the deterrent value of the proposed action
• § 25.10 — Formal hearings: a mortgagee subject to any action other than a letter of reprimand may request a formal hearing before an ALJ within 30 days of the Board's notice of administrative action; the hearing is governed by 24 CFR Part 26 (HUD's administrative procedure rules); request for hearing stays the Board's action pending the ALJ's decision
• § 25.11 — ALJ order limits: an ALJ's order may not modify or disturb a Board order unless the Board's order is found to violate applicable law or HUD regulations; the ALJ may not substitute its judgment on the appropriate sanction if the Board's choice falls within the range of permissible actions
• § 25.12 — Public access and publication: Board actions that do not result in hearings and all settlements are published in the Federal Register and on HUD's website; even letters of reprimand are published; HUD maintains a searchable database of Mortgagee Review Board actions, making enforcement history publicly available — lenders with repeated MRB actions face heightened scrutiny from investors, warehouse lenders, and Ginnie Mae
• § 25.13 — GNMA notification: when the Board issues a notice of violation that could lead to withdrawal of a mortgagee's FHA approval, or when GNMA notifies the Board of a parallel action against the same mortgagee, the agencies coordinate — because FHA approval is a prerequisite for GNMA issuer status, an FHA withdrawal typically terminates the lender's ability to securitize FHA loans through Ginnie Mae pools

The Mortgagee Review Board sits at the intersection of consumer protection and federal mortgage insurance fund management. FHA's Mutual Mortgage Insurance Fund (MMIF) bears the loss when FHA-insured loans default and the mortgage insurance claim is paid — so lenders who originate low-quality loans or commit fraud impose direct costs on the federal government. The MRB's sanction authority (withdrawal, suspension, civil money penalties) gives HUD leverage to eject bad actors from the FHA program and deter non-compliant underwriting practices. For FHA-approved lenders, an MRB investigation is a material business risk: withdrawal eliminates access to the largest U.S. mortgage insurance program and ends GNMA issuer status, effectively requiring the lender to exit the government-backed mortgage business.

HUD Approval of Lending Institutions and Mortgagees (24 CFR Part 202)

24 CFR Part 202 establishes the minimum standards for any lender or mortgagee to be approved for participation in HUD's Title I (home improvement and manufactured housing loans) and Title II (FHA-insured mortgage) programs. Lender approval is the gateway to the FHA system — only HUD-approved mortgagees may originate FHA-insured loans.

• § 202.3 — Approval status: approval is granted on initial application and is conditioned on maintaining ongoing compliance; HUD may grant unconditional approval (full participation), conditional approval (limited participation pending correction of deficiencies), or probationary approval (enhanced monitoring for lenders with marginal compliance history)
• § 202.5 — General approval standards: to be approved and to maintain approval, a lender must: maintain a minimum net worth (the threshold varies by lender type — nonsupervised lenders must maintain at least $1 million net worth for Title II); have annual financial statements audited by an independent CPA; maintain a quality control plan covering underwriting, appraisal, and servicing; be licensed in each state where it does business; not be debarred or suspended from federal programs
• § 202.6 — Supervised lenders: a "supervised" lender is a federally supervised financial institution (Federal Reserve member, FDIC-insured, credit union, savings association); supervised lenders are subject to ongoing federal regulatory examination as part of their charter requirements, so HUD relies on those regulatory agencies for the primary safety-and-soundness oversight and imposes lighter initial approval requirements
• § 202.7 — Nonsupervised lenders: a "nonsupervised" lender is any lender not covered by a federal banking regulator — typically mortgage companies and independent mortgage banks whose principal activity is lending; nonsupervised lenders face more stringent HUD approval requirements including higher net worth thresholds and mandatory independent audits because they lack primary federal safety-and-soundness oversight
• § 202.10 — Governmental institutions: federal agencies, government-sponsored enterprises (Fannie Mae, Freddie Mac), public housing agencies, and state housing finance agencies may participate in FHA programs under special procedures without meeting the full lender approval standards applicable to private lenders — they are deemed approved by virtue of their governmental or quasi-governmental status
• § 202.11 — Title I sanctions: HUD may impose sanctions on Title I lenders for violations including fraudulent claims, failure to maintain required net worth, failure to maintain a QC plan, or pattern of originating loans that result in claims against the Title I Insurance Fund; sanctions include termination of the Contract of Insurance, withdrawal of approval, and civil money penalties
• § 202.12 — Title II tiered pricing prohibition: a Title II mortgagee may not charge more than a 10 percent variation in interest rates, fees, or other charges to borrowers with similar qualifications for the same loan product in the same geographic market — a rule designed to prevent geographic redlining where lenders charge higher rates in minority or low-income neighborhoods; if tiered pricing variation exceeds 10 percent, HUD may require written justification demonstrating legitimate cost differences

Part 202 operates as the front-end screen for the FHA lending system: lenders who cannot meet net worth, audit, or QC plan requirements cannot access the FHA origination market. The geographic tiered-pricing prohibition in § 202.12 is one of the primary regulatory tools against modern redlining, supplementing the Fair Housing Act's discrimination prohibitions with a bright-line rule that triggers HUD scrutiny when rate variations across areas exceed 10 percent without documented justification.

Condominium Mortgage Insurance (24 CFR Part 234)

24 CFR Part 234 governs FHA insurance of individual condominium unit mortgages under National Housing Act § 234 (12 U.S.C. § 1715y). Condominium financing through FHA requires two-level approval: the condominium project itself must receive FHA approval (confirming the project's financial health, owner-occupancy ratio, and legal structure), and then individual unit mortgages within the approved project receive standard FHA single-family insurance. Part 234 operates largely by cross-reference:

• § 234.1 — Cross-reference to Part 203: all provisions of 24 CFR Part 203, Subpart A (eligibility requirements and underwriting procedures for single-family loans) apply to Part 234 condominium mortgages — the same credit standards, property conditions, loan limits, and MIP requirements govern; the condominium unit is evaluated as if it were a single-family residence, with additional project-level requirements layered on

• § 234.17 — Flood insurance: condominium units in Special Flood Hazard Areas (SFHAs) must maintain flood insurance in an amount sufficient to cover the lesser of the outstanding mortgage balance or the maximum coverage available under the NFIP; flood insurance is a closing condition — FHA will not endorse a unit mortgage without evidence of required coverage

• §§ 234.251–234.270 — Multifamily condominium project mortgages (blanket mortgages): FHA also insures the underlying blanket mortgage on the entire condominium project (covering the whole building or development, not individual units); blanket mortgage insurance is the mechanism by which new condominium projects can obtain financing before individual units are sold; the blanket mortgage insurance provisions under Part 234 incorporate the multifamily insurance terms of 24 CFR Part 207 by cross-reference (§ 234.255)

• § 234.256 — Substitute mortgagors: when a condominium unit is sold and the buyer assumes the existing FHA mortgage (an assumable FHA loan), the requirements for the seller's release of liability and the buyer's creditworthiness qualification follow the standards in Part 203; assumptions of FHA loans are common for condominiums in rising-rate environments where buyers seek to take over below-market legacy rates

  FHA condominium approval has been a persistent policy tension. HUD has historically required at least 50% owner-occupancy in FHA-eligible condo projects, reflecting concern that investor-dominated projects carry higher default risk. This threshold has effectively excluded many condominium buildings in dense urban markets — where investor ratios often exceed 50% — from FHA financing, limiting the pool of buyers who can use FHA loans for urban condo purchases. The Economic Growth, Regulatory Relief, and Consumer Protection Act (2018) directed HUD to ease the owner-occupancy and reserve-fund requirements for smaller and older condominium buildings. HUD implemented changes in 2019 (84 FR 48472) that expanded eligibility to include single-unit approvals in unapproved projects under certain conditions and reduced the minimum owner-occupancy threshold to 35% for projects meeting certain financial criteria. These changes modestly expanded FHA access for urban condo buyers. No major amendments since 2019.

How It Works

The defining cost of an FHA loan is the Mortgage Insurance Premium (MIP) — unavoidable and structured in two layers. At closing, you pay an upfront MIP of 1.75% of the loan amount, which can be rolled into the loan balance (on a $350,000 loan, that's $6,125 added to what you owe). You then pay an annual MIP of approximately 0.55% of the outstanding balance, divided into monthly installments. The critical trap: unlike conventional PMI, FHA annual MIP does not cancel when you reach 80% LTV for loans with less than 10% down payment — it runs for the entire loan term. On a 30-year FHA loan at $350,000, lifetime MIP payments can exceed $50,000. Borrowers who put 10% or more down can cancel MIP after 11 years. This is why refinancing out of an FHA loan into a conventional loan once you have 20% equity often makes financial sense.

FHA's appeal is credit and income flexibility. FHA insured loans accept credit scores as low as 500 (with 10% down) or 580 (with 3.5% down), compared to 620+ typically required for conventional loans. FHA is more forgiving of past credit events — bankruptcy requires a 2-year waiting period after discharge (versus 4 years for conventional), and foreclosure requires 3 years (versus 7 for conventional). Debt-to-income ratios can reach 57% with compensating factors (strong reserves, higher credit score) compared to 45–50% on most conventional programs — allowing borrowers to qualify for larger loan amounts relative to income. FHA also requires properties to meet Minimum Property Requirements for safety, soundness, and security; appraisals are more rigorous than conventional, and properties needing significant repairs may not qualify without being remedied first.

Two specialized FHA programs extend its usefulness beyond simple purchase loans. The 203(k) rehabilitation mortgage lets borrowers finance both the purchase and renovation of a property in a single loan — including structural repairs, roofing, plumbing, HVAC, and accessibility improvements — making it the primary federal tool for buying a fixer-upper with financing already in place for the work. FHA loans are also assumable: a creditworthy buyer can take over the seller's FHA loan at its original interest rate, which becomes a powerful selling advantage when prevailing rates are significantly higher than the existing loan rate. Under RESPA § 2607 (12 U.S.C. § 2607), kickbacks and unearned referral fees among lenders, real estate agents, and settlement service providers are illegal — violations carry fines up to $10,000 and up to one year in prison. FHA lenders are also restricted by § 2609 from collecting more into escrow than the amount needed for upcoming tax and insurance payments plus a two-month cushion; excess escrow must be refunded or credited annually.

How It Affects You

State Variations

FHA loan limits vary by county (same framework as conforming limits). FHA programs are federal; no state-level variation in terms. Some states offer down payment assistance programs that can be layered with FHA loans.

Pending Legislation (119th Congress)

• HR6270 — Modular Housing Production Act — Requires HUD to review FHA rules and start rulemaking on modular home financing, expanding FHA coverage for factory-built homes
• HR3156 — Federal Worker Mortgage Forbearance Act — Temporary forbearance for federally backed mortgages (including FHA) during government funding lapses; lets federal workers pause payments and protects credit
• HR3092 — Affordable Housing Expansion Act — Ties prevailing-wage rules to residential project character; modernizes wage data and creates a Labor-HUD working group to streamline housing development
• HR6720 — FARM Home Loans Act — Lets rural home loans treat accessory dwelling units as appurtenances and raises the population threshold from 2,500 to 10,000
• HR 7755 — Would direct HUD to submit a report on exempting downpayment assistance from FHA requirements. Status: Introduced.
• HR 964 — Property Improvement and Manufactured Housing Loan Modernization Act of 2025: would let FHA loans fund ADUs, raise and index repair and manufactured-home loan limits, and require a HUD study. Status: Introduced.

Recent Developments

• Trump "Promoting Access to Mortgage Credit" EO (March 2026): Trump signed an executive order directing HUD, Treasury, and other agencies to expand mortgage credit access — signaling potential changes to FHA underwriting standards, manual underwriting guidelines, and debt-to-income ratio limits. New FHA Commissioner Frank Cassidy (confirmed March 2026) and Ginnie Mae President Joseph Gormley are implementing the deregulatory agenda. The EO also directed agencies to remove regulatory barriers to home construction, including streamlining Clean Water Act permitting for housing developments.
• FHA foreclosure relief for LA wildfire victims (January 2025): HUD extended FHA foreclosure relief to Californians impacted by the January 2025 Los Angeles County wildfires — the most destructive fire event in California history. Relief includes 90-day foreclosure moratoriums, special forbearance options allowing missed payments to be added to the end of the loan, and waiver of late fees for affected FHA borrowers. Affected borrowers should contact their loan servicer directly (not HUD) to request the disaster forbearance; servicers are required to offer it without requiring documentation of financial hardship during the covered period.
• FHA loan assumption volumes rising in high-rate environment: FHA loans (unlike most conventional loans) are assumable — a new buyer can take over the seller's existing FHA mortgage at the original interest rate. With 30-year fixed rates near 6.5-7% and many FHA borrowers locked in at 3-4% rates from 2020-2021, loan assumptions have increased significantly. The assumption process requires HUD approval and full credit qualification of the new buyer, and takes 45-90 days — longer than a conventional purchase. Sellers with below-market-rate FHA loans can command a premium; buyers who can qualify should ask whether the seller has an assumable FHA or VA loan before negotiating.