If you've been researching mortgage options, you've probably come across the term "FHA loan." What most people don't realize is that the FHA 203(b) loan is the specific program they're reading about. It's the standard, most widely used loan insured by the Federal Housing Administration, and it's designed for homebuyers who may not have a large down payment saved or whose credit history has some blemishes.

The 203(b) isn't a niche product. According to HUD, FHA-insured loans have served more than 50 million homebuyers since the program launched in 1934. It remains one of the most accessible paths to homeownership in the country. But accessible doesn't mean simple — the program has specific rules around credit scores, mortgage insurance, and property requirements that are worth understanding before you apply.

This guide breaks down how the FHA 203(b) actually works, what it costs, and how it compares to other FHA loan options like the 203(k).

What Is an FHA 203(b) Loan?

The FHA 203(b) is a government-backed mortgage program that allows borrowers to buy or refinance a primary residence with a down payment as low as 3.5%. The FHA doesn't lend money directly — instead, it insures the loan for approved lenders, which reduces the lender's risk and makes it possible to offer more flexible qualifying standards.

This program is often a good fit for:

• Buyers with credit scores between 500 and 700
• People with limited savings who need a low down payment
• Borrowers with a higher debt-to-income ratio than conventional loan programs might allow

One common misconception: FHA 203(b) loans are not restricted to first-time homebuyers. Anyone purchasing or refinancing a mortgage on a primary residence can apply, as long as they meet the program requirements.

FHA 203(b) Loan Requirements at a Glance

Here's a quick reference for the program's key requirements. We'll dig into the most important ones — credit, down payment, and mortgage insurance — in detail below.

How the Credit Score and Down Payment Tiers Work

The FHA 203(b) uses a tiered system that links your credit score to the minimum down payment you'll need. This is one of the features that sets it apart from conventional financing.

Tier 1: Credit Score 580 or Higher

You qualify for the minimum 3.5% down payment. On a $350,000 home, that's $12,250.

Tier 2: Credit Score 500–579

You'll need to put at least 10% down. On the same $350,000 home, that jumps to $35,000.

There's a catch, though. While FHA guidelines allow scores as low as 500, many lenders set their own minimums — often 580 or even 620. These are called "lender overlays," and they mean that meeting FHA's baseline doesn't guarantee approval everywhere. If your score is below 580, you may need to shop around for a lender that works with lower-score borrowers.

FHA Mortgage Insurance Premiums (MIP) — What You'll Actually Pay

Every FHA 203(b) loan requires mortgage insurance. This is the trade-off for the low down payment and flexible credit standards. There are two parts to it:

Upfront Mortgage Insurance Premium (UFMIP)

This is 1.75% of your base loan amount, due at closing. Most borrowers roll it into the loan balance rather than paying it out of pocket, which means it gets financed over the life of the loan.

Annual Mortgage Insurance Premium

This is an ongoing charge split into monthly payments and added to your mortgage payment. The annual rate depends on your loan amount, term, and loan-to-value ratio, but for most 30-year FHA borrowers, it's 0.55% per year.

Here's what that looks like on a real loan:

How Long Do You Pay MIP?

This is where a lot of borrowers are caught off guard. The duration of your annual MIP depends on how much you put down:

• Less than 10% down: You pay annual MIP for the full life of the loan. The only way to remove it is to refinance into a conventional loan once you have enough equity and a qualifying credit score.
• 10% or more down: Annual MIP drops off after 11 years.

Since most FHA 203(b) borrowers put down 3.5%, the majority will carry MIP for the entire loan term unless they refinance. This is an honest downside to weigh against the lower entry cost. You can use our mortgage calculator to see how MIP affects your monthly payment.

FHA 203(b) Loan Limits

FHA loan limits are set by county and updated each year. They're based on local median home prices, so what you can borrow with an FHA loan in Denver will differ from what's available in rural Florida.

For 2024, the FHA floor limit — the minimum available in every county — is $498,257 for a single-family home, according to HUD. [Verify for current year at time of publication.] In higher-cost areas, the ceiling can go significantly higher.

If you're buying in Colorado or Florida, check the limit for your specific county before assuming an FHA loan will cover the purchase price. Your lender can pull this up quickly, or you can find it on HUD's website.

FHA 203(b) vs. 203(k): Which Program Fits?

The names sound similar, and both fall under FHA's umbrella. But they serve different purposes.

The 203(b) is for properties that are already in livable condition — homes that meet FHA's minimum property standards without major repairs. The 203(k) is a renovation loan that lets you finance the purchase price plus the cost of repairs into a single mortgage.

If the home you're looking at needs minor cosmetic work — new paint, updated fixtures — the 203(b) can still work. The line is drawn at health and safety issues or major structural problems, which would push you toward a 203(k) or a different property.

Is the FHA 203(b) the Right Fit for You?

The 203(b) works well when a low down payment and flexible credit standards are your priority. But it's not automatically the best choice for every buyer.

If you have a credit score above 700 and can put 5–10% down, a conventional loan may actually cost less over time because you can avoid permanent mortgage insurance. With conventional loans, private mortgage insurance (PMI) can be removed once you reach 20% equity — something that isn't an option with FHA's MIP on loans with less than 10% down.

On the other hand, if your score is in the 580–660 range and your savings are tight, the FHA 203(b) is often the more realistic path. It's a matter of matching the program to your current financial picture, not picking the one with the best marketing.

A broker can walk you through both scenarios side by side using your actual numbers. That comparison is usually more useful than any general advice you'll find online.

Frequently Asked Questions About the FHA 203(b) Loan