FHA Loans

What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. The FHA doesn't lend money directly — it insures loans made by approved private lenders, reducing the lender's risk and allowing them to offer more flexible qualification terms.

FHA loans are particularly popular with first-time buyers, borrowers with limited savings, and those who have had past credit challenges. They're available for single-family homes, condos (on FHA-approved lists), and 2-4 unit properties where the borrower occupies one unit.

Down payment: 3.5% minimum

FHA loans require a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher. Borrowers with scores between 500 and 579 can still qualify but must put down at least 10%.

The down payment can come from personal savings, a gift from a family member, or certain down payment assistance programs. Tennessee Housing Development Agency (THDA) offers down payment assistance that can be layered with FHA financing for qualifying buyers.

FHA loan limits in Tennessee

FHA loan limits vary by county and are set annually by HUD. For 2026, most Tennessee counties have a single-family FHA loan limit of $524,225. Higher-cost areas — including parts of the Nashville metro — may have higher limits. Check HUD's current limit table for the specific county you're buying in, as limits are updated each year.

These limits are lower than conventional conforming limits, which means buyers in higher price ranges may need to consider conventional financing even if FHA would otherwise be a good fit.

Mortgage insurance premiums (MIP)

FHA loans require two types of mortgage insurance:

• Upfront MIP: 1.75% of the loan amount, paid at closing or rolled into the loan balance
• Annual MIP: Ranges from 0.15% to 0.75% of the loan balance annually, paid monthly

For most FHA borrowers putting down less than 10%, annual MIP lasts for the life of the loan. This is a significant long-term cost compared to conventional PMI, which can be cancelled once you reach 20% equity. Borrowers who put down 10% or more can have MIP removed after 11 years.

Credit and income requirements

FHA's minimum credit score is 500, though most lenders impose overlays requiring 580 or 620 — and some require higher. Debt-to-income ratios can go up to 57% in some cases with strong compensating factors through automated underwriting, though lender overlays often set lower limits. FHA is generally more accessible for borrowers with higher debt loads than conventional programs, but the specific threshold depends on the lender and your overall file.

FHA is also more forgiving of past credit events. Borrowers can typically qualify two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure, compared to four and seven years respectively for conventional loans. Individual lender overlays may impose longer waiting periods.

FHA vs. conventional: how to compare

FHA and conventional are not interchangeable, and neither is automatically better. The right choice depends on your credit score, down payment, loan amount, mortgage insurance costs, and how long you plan to stay in the home. FHA's upfront MIP and lifetime annual MIP (for borrowers putting down less than 10%) add long-term cost that conventional PMI — which is cancellable — does not. On the other hand, FHA pricing is less sensitive to credit score than conventional, which uses risk-based pricing adjustments (LLPAs) that can significantly increase the effective rate for borrowers below 700.

The right answer depends on your specific numbers. Morgan Hardy can run a side-by-side comparison showing total costs over your expected ownership period for both programs.