For most people, if you buy a house using an FHA loan, you’re technically using a 203(b) loan — the official name for the FHA’s flagship loan program. You can use these loans to buy one- to four-unit primary residences across the nation, enjoying a low interest rate and a small (often just 3.5%) down payment in the process.
FHA 203(b) loans also have less stringent qualifying requirements than many other mortgage programs, making them a good choice for first-time buyers or those with lower credit scores or higher debt-to-income ratios.
Are you exploring an FHA 203(b) loan for your home purchase? Here’s what you need to know.
In a nutshell
The FHA 203(b) loan is the basic FHA mortgage loan you can use to buy a home or refinance. These are backed by the Federal Housing Administration and can be used on move-in ready homes. They’re not to be confused with the FHA’s 203(k) loan, which is designed for fixer-uppers — financing a home’s purchase price, plus the cost of any repairs or renovations it needs, all with one single loan.
Benefits Of An FHA 203(b)
The FHA 203(b) loan program offers many benefits. It can be used by both first-time and repeat homebuyers, you can purchase a single-family home or one with several units (as long as you live in one), and you can qualify with only a small down payment.
FHA also has looser qualifying requirements than other mortgage options, so many borrowers can qualify even with a low credit score (down to 500, in some cases) or lots of debt. We’ll delve more into qualifying requirements further down, though.
Finally, FHA loans come with low interest rates. According to ICE Mortgage Technology, the average interest rate on an FHA loan was 6.3% as of Jan. 13, 2025. Conventional loans averaged 6.98% at the same time. These lower rates are thanks to the government backing that comes with these loans. If an FHA borrower fails to make payments, the federal government will repay the lender a portion of their losses, thus reducing the risk lenders face when taking on these loans. (And a lower risk equals a lower interest rate).
FHA 203(b) vs. 203(k) Loan
There are two different types of 203 loans under the FHA umbrella. The first is the 203(b) — the department’s standard loan program that you’d use to buy or refinance your typical home.
If you’re eyeing a fixer-upper, though, you’d more likely look to the FHA’s 203(k) loan — a loan designed to help you cover both the costs of the property and the costs to renovate and repair it. These are sometimes called “FHA renovation loans” or “FHA rehab loans.”
Naturally, the 203(k) loan is a little riskier for lenders, as it involves estimating the future, after-repair value of the property — something that’s not always easy to do accurately. Because of this, they are typically harder to qualify for and come with higher rates than the basic 203(b) loan.
The 203(k) program also requires working with FHA-approved contractors to complete the work necessary on your home — and meeting certain milestones before funding for those renovations can be released. It’s a more involved process, and these loans aren’t offered by all lenders.
FHA 203(b) vs. FHA 203(k)
| Loan types | FHA 203(b) loan | FHA 203(k) loan |
|---|---|---|
| Purpose | Used for traditional, move-in-ready homes | Used for homes that require renovation/repair |
| Property requirements | Must meet FHA minimum property standards for approval | Can be used on a home still in need of repairs to meet FHA property standards |
| Interest rates | Lower rates | Higher rates |
| Appraisal proces | One single appraisal before closing | Multiple appraisals at different milestones in the renovation |
FHA 203(b) Loan Requirements
FHA 203(b) loans tend to be among the easiest to qualify for in the mortgage world. They allow for low credit scores (down to 500 for some borrowers), higher debt-to-income ratios (sometimes more than 50%), and low down payments (3.5% is the minimum).
Because of these looser requirements, FHA 203(b) loans are a popular choice with first-time homebuyers, who may have little saved up or still be working on building up their credit.
Here’s a look at the exact requirements you’ll need to meet to get a 203(b) loan:
| Down payment | 3.5% to 10% of the purchase price |
|---|---|
| Credit score* | 500 (with 10% down payment) 580 (with 3.5% down payment) |
| Debt-to-income ratio | 43% typically, but you may be able to qualify for a DTI of up to 57% if you have compensating factors (a flush savings account, strong credit history, etc.) |
| Loan amount | Up to $524,225 in most parts of the country, though some higher-cost markets may allow for up to $1,209,750 |
Additional Resources
See the following resources to learn more about FHA loans, as well as their benefits, costs, and requirements:
Emily Kittle is an experienced underwriter with a strong background in risk assessment, training, and loan decision-making. She excels at solving complex mortgage challenges and guiding loans to closing using creativity and critical thinking.
