Homebuyers

How FHA Loans May Make City Homebuying More Affordable (Even on a Tight Budget)

Looking for your own home amidst the bright lights of a big (or small or mid-size) city? Whether you’re eyeing a Brooklyn brownstone, a Chicago bungalow, or a Miami condo, urban homeownership is within reach, even if your bank account and credit score aren’t picture-perfect.

Enter Federal Housing Administration (FHA) loans. These government-backed mortgages were designed to help prospective homebuyers close the deal without a huge down payment or impeccable credit. And they can be used in cities, even large ones.  

Here’s a secret: FHA loans aren’t just for first-time homebuyers.

“People think of them as first-time homebuyer loans, but they’re really not,” said New American Funding Divisional Senior Vice President Ralph DiBugnara, who is based in Edgewater, N.J. “They’re for everybody and give you more buying power.”

Whether you're navigating competitive urban markets or searching for that perfect walkable neighborhood, an FHA loan could be your ticket to homeownership. Let’s look at how an FHA loan could help you find the right spot in your favorite urban ZIP Code.

What is an FHA Loan?

FHA loans offer valuable benefits. FHA loan down payments may be as low as 3.5% of the sale price. And these mortgages offer lower credit score requirements, only require two years of consistent employment history, and buyers may also be able to have more debt with these mortgages than with other loans.

Plus, mortgage interest rates are often lower for these loans.

FHA loan requirements include:

• You may be able to qualify for an FHA loan with a credit score of at least 500. However, the higher your credit score, the lower the required down payment.
• Debt-to-income ratio of 43%.
• No foreclosures or bankruptcies in the last three years.
• Mortgage insurance for the life of the loan if you put down less than 10% of the sale price of the home.
• The home must be your primary residence.
• If the home is a multi-family structure, with more than one unit, the mortgage holder must live in one unit.
• You can only have one FHA loan at a time.

An FHA loan down payment can be as low as 3.5% of the total home price. That may make it easier to save for a down payment on a pricey condo or house in high-cost-of-living areas.

The loans can be used for a surprising variety of homes, including some condos, single-family homes, and multi-family homes up to four units. However, the condos must be FHA-approved or eligible for single-unit approval to use the loan.

There are even options for an FHA modular home loan, provided the home was built on a fixed foundation larger than 400 square feet after 1976.

FHA Loan Limits in 2026

Home prices in cities may be higher than in many surrounding suburbs. But that doesn’t necessarily mean homebuyers in urban areas can’t use an FHA loan to purchase properties there.

FHA loan limits for 2026 stretch up to $1,249,125 in some of the priciest parts of the country and may be even higher for multi-family homes in those areas. Otherwise, they go up to $541,287 for single-family homes in lower-cost housing markets.

“The limits are based on city, state, and ZIP Code,” said DiBugnara. “In New York and New Jersey, you’ll find a ceiling of roughly $1.2 million for a single-family home” in certain parts of the state.

Loan limits can stretch to nearly $1.9 million for single family homes in Hawaii, Alaska, Guam, and the U.S. Virgin Islands, where construction costs are high.

DiBugnara warned that some lenders issuing FHA loans may require larger down payments on properties that push the upper limit.

“Areas where you see higher price points are going to have much higher loan limits,” said DiBugnara.

Conventional vs FHA loans

With all the benefits of an FHA loan, why would anyone choose a different mortgage, such as Conventional loan?

Mortgage insurance premiums are one of those reasons. Buyers who make a down payment of less than 10% will pay the premiums for the life of the loan unless they refinance into a Conventional loan.

Those who put down at least 10% may be able to get rid of the premiums after 11 years.

“A lot of times, the FHA loan interest rate will be lower than for Conventional loans,” said DiBugnara. “But you also have to pay mortgage insurance [on FHA loans,] so it may end up being a higher payment overall.” 

Homes purchased with an FHA loan must also pass an FHA inspection. Even if it’s a fixer-upper, it still needs to pass minimum safety standards.

FHA loans can make it easier to purchase homes in cities and urban areas, but it’s important to look at your individual situation to weigh the advantages and disadvantages of these mortgages.

Ralph DiBugnara NMLS # 19269