FHA is the loan that gets people into houses when conventional financing says no. It is insured by the federal government, which is why lenders will accept lower credit scores, higher debt loads and shorter recovery periods after a bankruptcy than they otherwise would. It is also, routinely, used by people who would be measurably better off somewhere else — and nobody runs that comparison for them because most lenders only sell one side of it.
Upfront MIP + monthly, life of loan under 10% down
Debt-to-income
More forgiving than conventional
Property type
Primary residence, 1–4 units
Best for
Credit under ~680, or a high debt ratio
Who this is for
Your credit score is in the 500s or the low-to-mid 600s
Your debt-to-income ratio is higher than a conventional lender will accept
You had a bankruptcy or foreclosure that is now a couple of years behind you
You are buying a home that needs work a conventional appraiser would overlook but a lender will not finance
You are buying a two-to-four unit property and intend to live in one of them
How it works
Three and a half percent down, and it can all be gifted
At a 580 credit score and above, the minimum down payment is 3.5 percent. Between 500 and 579 it rises to ten percent. Below 500 FHA is not available.
Every dollar of that down payment can come from a documented gift. FHA is the most gift-friendly of the major programmes, and it also permits contributions from a wider range of sources than conventional financing does — family, an employer, a labour union, a charitable organisation. What it needs is the paper trail: a gift letter, and evidence of the money moving between accounts.
Underwriting looks at the whole picture, not just the score
FHA allows higher debt-to-income ratios than conventional lending, and the automated system will push further still when there are compensating factors — meaningful cash reserves, a long history in the same job, or a new payment close to what you already pay in rent.
It also takes a more forgiving view of past credit events. Chapter 7 bankruptcy generally needs two years behind you. Chapter 13 can work while you are still in the plan with trustee approval and twelve months of on-time payments. Foreclosure typically requires three years. All of those can be shortened with documented extenuating circumstances — a death, a serious illness, a genuine one-off event rather than a pattern.
Lender overlays are the reason two lenders give different answers
This is the part almost nobody explains.
FHA sets the programme rules. Individual lenders then layer their own stricter requirements on top, called overlays. FHA might permit a 580 score; a particular lender will not go below 620. FHA might permit a debt ratio in the fifties; a lender caps it lower.
So a borrower gets declined, concludes they cannot get an FHA loan, and stops. What actually happened is that one lender's overlay stopped them. As brokers we know which lenders overlay hardest and which follow FHA guidelines closely, and that knowledge is worth more on FHA than on any other programme.
The appraisal checks condition, not just value
An FHA appraiser is doing two jobs: establishing what the home is worth, and confirming it meets minimum property standards. Safe, sound, sanitary.
The things that stop FHA deals are consistent. Peeling or chipping paint on a home built before 1978, because of lead paint rules. Exposed or knob-and-tube wiring. A roof with insufficient remaining life. Missing handrails on stairs. Broken windows. Non-functioning heat. Water intrusion.
None of that is about cosmetics — an ugly kitchen is fine. But on older housing stock it matters, and it is the single most common reason an FHA contract falls apart. If the seller will not make the repairs and you cannot pay for them, that is precisely the situation a renovation loan exists to solve.
You can buy a two-to-four unit property with it
FHA will finance a duplex, triplex or fourplex at the same low down payment, provided you live in one of the units. Rental income from the other units can often be counted toward qualifying. For a first-time buyer who wants tenants helping cover the mortgage, this is one of the few genuinely accessible routes into it — and it is dramatically underused.
The details that decide it
What FHA mortgage insurance actually costs you
There are two separate charges and they work differently.
The upfront mortgage insurance premium is a percentage of the loan, charged once, and virtually always financed into the balance rather than paid in cash. It increases what you owe from day one.
The annual mortgage insurance premium is collected monthly. Its rate depends on your loan term and how much you put down — and unlike conventional private mortgage insurance, it is not priced off your credit score. That is precisely why FHA is competitive at lower scores: a 620 borrower pays the same MIP as a 760 borrower, whereas conventional PMI would punish the 620.
The catch is duration, and it is the defining feature of the programme.
The mortgage insurance does not fall off
If you put down less than ten percent — which describes almost every FHA borrower — the annual premium lasts the entire life of the loan. It does not cancel at twenty percent equity the way conventional PMI does. It does not cancel at thirty percent. It runs until the loan is paid off or refinanced.
With ten percent down or more it terminates after eleven years, but very few FHA borrowers put ten percent down; if they had it, conventional would usually be the better loan anyway.
The standard exit is refinancing into a conventional loan once you have roughly twenty percent equity and a credit score that prices well. That is a real, common, sensible plan — but it is not free, it depends on rates being tolerable when you get there, and it is worth going in with your eyes open rather than being told the insurance 'comes off eventually'. It does not.
The FHA Streamline refinance
If you already have an FHA loan, the Streamline refinance is one of the easiest transactions in lending. In most cases there is no new appraisal, no income documentation and no new credit qualification — the file simply has to show a net tangible benefit, usually a meaningful drop in payment. It cannot be used to take cash out. If rates fall after you buy with FHA, this is the low-friction way to capture it while you work toward the conventional refinance that removes mortgage insurance entirely.
FHA loan limits are set by county
FHA caps how much it will insure, and the cap varies by county and is adjusted annually. In most of Middle Tennessee the limit comfortably covers typical purchase prices, but in higher-cost counties it can bind. If your purchase is near the ceiling, the comparison against a conventional loan changes — ask before you assume FHA is available at your price point.
FHA vs. Conventional
This is the decision most buyers who are not VA or USDA eligible are actually making. The right answer flips at around a 680 credit score, and the difference over five years is real money.
FHA
Conventional
Minimum down
3.5%
3%
Minimum credit
580 (500 w/ 10% down)
~620
Insurance priced by score?
No — flat rate
Yes — cheaper as score rises
Does insurance end?
No, under 10% down
Yes — cancels at 20% equity
Debt-to-income tolerance
Higher
Lower
After bankruptcy
2 years (Ch. 7)
4 years (Ch. 7)
After foreclosure
3 years
7 years
Appraisal
Value + condition
Value
Best when
Score below ~680, or high DTI
Score above ~680
Below roughly 680, FHA usually wins on monthly cost today. Above it, conventional almost always wins over any real holding period, because the mortgage insurance is cheaper and it eventually disappears. If you are near the line, the difference is worth calculating rather than guessing — that is the comparison we run before you commit to either.
What people get wrong
Taking FHA when your credit qualifies for conventional
The most expensive mistake on this page. A borrower at 700 who takes FHA because a lender offered it can pay considerably more over five years than the same borrower on conventional, purely through mortgage insurance that never cancels.
Believing the mortgage insurance will come off
Under ten percent down it does not, ever. It has to be refinanced away. Plan for that from the start rather than discovering it at year six.
Accepting a decline as final
Most FHA declines are lender overlays, not FHA rules. A file turned down at one lender is frequently approved at another with no change to the borrower at all.
Writing an offer on a fixer without a plan
FHA appraisers flag condition. Peeling paint on a pre-1978 home stops the deal. If the house needs work and the seller will not do it, you need a renovation loan, not a standard FHA loan.
Not asking the seller for closing costs
FHA permits seller contributions toward closing costs, up to a limit tied to the sale price. Buyers who do not ask arrive at closing with cash they did not need to spend.
FHA in Middle Tennessee
FHA does heavy lifting in this market for two reasons. First, prices in the Nashville metro have run ahead of incomes for long enough that debt-to-income ratios are where a lot of otherwise strong buyers get squeezed — and FHA's tolerance there is genuinely higher. Second, much of the older housing stock around Lebanon's square and through the established parts of Murfreesboro and East Nashville was built well before 1978, which puts the lead-paint condition rules squarely in play. We would rather flag that before you write an offer than have an appraisal kill your contract three weeks in. And in Murfreesboro specifically, where new construction dominates and builders push their preferred lender hard, FHA is often quoted by default when a conventional loan would cost the same buyer less — bring us the builder's loan estimate and we will price it honestly against ours.
The honest part
Mortgage insurance for the life of the loan is a real cost and it compounds. FHA also carries a stigma with some listing agents in competitive situations — fairly or not, an FHA offer is sometimes read as a weaker one because of the appraisal condition requirements, and in a multiple-offer scenario that can matter. If your credit is above 680 and your debt ratio is reasonable, run the conventional numbers before you commit. If it is not, FHA is a genuinely good loan doing exactly the job it was created for, and there is no shame whatsoever in using it as a step rather than a destination.
Common questions
What is the minimum credit score for an FHA loan?
FHA allows 580 for 3.5 percent down and 500 with ten percent down. Individual lenders set stricter overlays and many will not go below 600 to 620 — as brokers we know which ones actually will.
Does FHA mortgage insurance ever go away?
If you put less than ten percent down, no — it lasts the life of the loan. With ten percent or more it drops off after eleven years. Most borrowers exit by refinancing into a conventional loan once they have equity.
Can I use an FHA loan more than once?
Yes, though generally only one FHA loan at a time. There are exceptions for relocation beyond commuting distance and for families who have genuinely outgrown the home.
How long after a bankruptcy can I get an FHA loan?
Generally two years after a Chapter 7 discharge, and Chapter 13 can work while still in the plan with trustee approval and twelve months of on-time payments. Both can be shortened with documented extenuating circumstances.
Can I buy a duplex with an FHA loan?
Yes — up to four units, at the same low down payment, provided you live in one of them. Rental income from the other units can often help you qualify.
Why did one lender decline my FHA loan and another approve it?
Lender overlays. FHA sets the programme rules and each lender adds its own stricter requirements on top. A decline is very often that lender's policy rather than FHA's.
What is an FHA Streamline refinance?
A simplified refinance for existing FHA borrowers that usually skips the appraisal, income documentation and credit qualification. It cannot be used to take cash out.
Is FHA or conventional better?
Below about a 680 credit score, FHA usually costs less monthly. Above it, conventional almost always wins over time because the mortgage insurance is cheaper and cancels. It depends on your score, down payment and holding period — we will run both.
FHA Loans near you
Tyler McCain is based in Lebanon, TN and works across the Nashville metro.
That depends on your numbers, your goals, and the options available to you. Tell us
about your situation and we will compare the programs that may fit — including if the
answer turns out to be a different one entirely.
