How Much House Can You Afford with an FHA Loan?

A Simple Breakdown of How Much House You Can Afford with an FHA Loan.

FHA loans, which are home loan insured by the Federal Housing Administration (FHA), help make homeownership a more affordable option for many Americans. But a range of financial details, like your debt-to-income ratio, credit score, and more, can impact the size of your FHA loan you qualify for.

If you aren’t sure how much home you can afford with an FHA loan, this guide to the factors involved can help.

Is an FHA Loan Right for Your Budget?

FHA loans have a reputation for making homeownership more accessible for some buyers due to more flexible eligibility requirements. Generally, FHA loans are a good choice for borrowers with moderate incomes and mid-range credit scores seeking a low down payment option.

But these government-backed loans aren’t the right fit for everyone. For example, if you have a high credit score and enough saved for a large down payment, a conventional loan might be a better fit and save you money.

Key Factors That Affect FHA Loan Affordability

When considering an FHA loan, a few key financial details will impact the loan’s affordability. These include the following factors:

• Down payment: FHA loan borrowers with a credit score of at least 580 only need to put down 3.5%. For those with credit scores between 500 and 579, the minimum down payment requirement rises to 10%.
• Location: FHA loan limits for home purchases vary based on where you are putting down roots. For example, in 2025, the maximum FHA loan amount for single-family homes ranges from $524,225 in the most affordable locations to $1,209,750 in the most expensive locations.
• Debt-to-income ratio (DTI): Lenders consider your debt-to-income (DTI) ratio, which weighs your total monthly debts against your income, when determining your FHA loan eligibility. Generally, FHA lenders require a DTI of 43% or les s to qualify for an FHA loan, but the FHA allows for DTI up to 50% with certain conditions.
• Closing costs: Like all mortgages, there are costs to be approved and borrow with an FHA loan, and borrowers will pay FHA closing costs. Typically, closing costs amount to 2% to 5% of the purchase price.
• Interest rates: Generally, FHA loans offer relatively low interest rates when compared to other mortgage options. This could lead to more affordable principal and interest monthly payments and fewer total interest charges over the loan term.
• Mortgage insurance premium (MIP): FHA loan borrowers must pay mortgage insurance premiums (MIP). When you close, you’ll face an MIP charge of 1.75 % of the loan amount. Additionally, borrowers have a smaller monthly MIP charge tacked onto their monthly payment. The size of your down payment determines how long you may have to pay FHA monthly MIP.
• Credit score: Although credit score requirements vary based on the lender, Freedom Mortgage accepts minimum credit scores as low as 550 for FHA loan borrowers.

How To Estimate What You Can Afford with an FHA Loan

After you’ve carefully considered the factors that might impact your FHA loan options, it’s a good idea to use an FHA loan calculator. The right calculator can give you a better idea of what you could expect to spend on a home purchase and mortgage payment.

For example, Freedom Mortgage’s home affordability calculator produces an estimate of the purchase price you might be able to afford using details like your monthly debt payments, income, and loan term preferences.

Ways To Increase Your Buying Power with an FHA Loan

Hopefully you now have a better idea of how your financial situation impacts your home purchasing power with an FHA loan. If you want to increase your buying power with an FHA loan, consider the following strategies:

• Lower your DTI: Not only does lowering your DTI (by paying off some of your debts) help free up some space in your budget, it could also help you get approved for a higher loan amount and potentially lower mortgage rates. As an alternative to paying off debts, increasing your income will also lower your DTI.
• Boost your credit score: If you can improve your credit score to at least the 580-mark, that could significantly lower your down payment requirements from 10% to 3.5% of the purchase price. Higher credit scores also tend to allow lenders to offer slightly lower rates.
• Save money for a larger down payment: If you have a larger down payment on hand, you’ll need to borrow less for your home purchase. A lower loan amount leads to a lower monthly payment.
• Consider a co-borrower: When planning a home purchase, getting a co-borrower to sign on could dramatically improve your mortgage application. If the new borrower increases the household income without too much debt or a lower credit score, this strategy could work well.

Final Thoughts: FHA Loans and Home Affordability

Buying a home is the start of an exciting new chapter of your life. For home buyers with lower credit scores, the FHA loan program might be the path to homeownership. But it’s important to explore all your mortgage options to find the mortgage that meets your financial goals and saves you the most money. Freedom Mortgage is ready to help you with this.

If you are ready to move forward with your homeownership journey, get in touch with our loan advisor team to help you find the right loan type for your situation.