FHA Loan Buying
An FHA loan is a mortgage insured by the Federal Housing Administration that lets you buy a home with as little as 3.5% down and a credit score as low as 580 — making it the go-to option for first-time buyers who don’t have a fat savings account.
The government doesn’t lend you money directly. Instead, FHA insures the loan, which means if you default, the lender gets reimbursed. That guarantee is why lenders are willing to accept lower down payments and weaker credit profiles.
FHA Loan Requirements (2026)
| Requirement | Minimum | Notes |
|---|---|---|
| Credit score | 580 (3.5% down) or 500 (10% down) | Most lenders want 620+ despite FHA minimums |
| Down payment | 3.5% | Can come from gifts, DPA grants, or savings |
| DTI ratio | 43% (up to 50% with compensating factors) | Total monthly debts / gross monthly income |
| Employment | 2 years steady history | Same field counts, doesn’t need same employer |
| Property | Must be primary residence | No investment properties or vacation homes |
| Loan limits (2026) | $541,287 (standard) | Up to $1,249,125 in high-cost areas |
The Mortgage Insurance Premium (MIP) Problem
This is the biggest downside of FHA loans. You pay two types of mortgage insurance:
- Upfront MIP: 1.75% of the loan amount, due at closing (usually rolled into the loan). On a $300,000 loan, that’s $5,250
- Annual MIP: 0.55% of the loan balance per year, split into monthly payments. That’s about $137/month on a $300,000 loan
Here’s the kicker: if you put less than 10% down (which is most FHA borrowers), MIP lasts the entire life of the loan. You can’t cancel it. The only way to drop it is to refinance into a conventional loan once you have 20% equity. Conventional PMI, by contrast, falls off automatically at 78% loan-to-value.
Over 30 years, FHA MIP on a $300,000 loan costs roughly $45,000–$50,000 in total insurance premiums. That’s real money.
FHA Pros and Cons
| Pros | Cons |
|---|---|
| 3.5% down payment | MIP for life of loan (if under 10% down) |
| 580 credit score minimum | Loan limits may restrict buying power |
| Gift funds allowed for full down payment | Property must meet FHA appraisal standards |
| Competitive interest rates | Primary residence only |
| Assumable by future buyers | Sellers sometimes prefer conventional offers |
| Higher DTI limits than conventional | 1.75% upfront MIP adds to loan balance |
FHA Property Requirements
FHA loans have standards the property must meet — not just the borrower. The FHA appraisal isn’t a full inspection, but the appraiser checks for minimum health and safety standards. Common deal-killers include:
- Peeling paint on homes built before 1978 (lead paint hazard)
- Missing handrails on stairs or improved walkways
- Non-functional mechanical systems (heating, plumbing, electrical)
- Roof with less than 2 years of remaining life
- Evidence of termite damage or active infestation
- Foundation cracks showing structural movement
- Standing water in crawl spaces or basements
If the property fails the FHA appraisal, the seller has to fix the issues before the loan can close — or you walk away. In competitive markets, this is why some sellers reject FHA offers. They don’t want to deal with the extra requirements.
FHA 2026 Loan Limits by Area Type
| Area Type | 1-Unit | 2-Unit | 3-Unit | 4-Unit |
|---|---|---|---|---|
| Low-cost (floor) | $541,287 | $637,950 | $771,125 | $958,350 |
| High-cost (ceiling) | $1,249,125 | $1,472,250 | $1,779,525 | $2,211,600 |
Most counties fall at the floor amount. High-cost areas like San Francisco, New York City, and parts of Hawaii and Alaska hit the ceiling. Check HUD’s lookup tool for your specific county.
FHA vs. Conventional: When to Pick Which
Choose FHA if: Your credit score is below 680, you have less than 5% saved for a down payment, or your DTI ratio is between 43%–50%. FHA’s flexible requirements are built for these situations.
Choose conventional if: Your credit score is 700+, you can put 5%+ down, and your DTI is under 43%. You’ll get a lower rate, cheaper PMI that drops off, and no upfront insurance premium. The savings over 30 years can be $30,000–$50,000.
The crossover point is usually around a 680 credit score with 5% down. Below that, FHA wins. Above that, conventional almost always costs less long-term.
One more thing: if you start with FHA and your credit improves over the first few years, you can refinance into a conventional loan to drop the MIP. Many borrowers treat FHA as a stepping stone — get in the door now, switch to conventional when the numbers work.
Frequently Asked Questions
Can I use an FHA loan for a fixer-upper?
Standard FHA loans require the home to meet minimum property standards — no peeling paint, working utilities, sound structure. But the FHA 203(k) renovation loan lets you buy and rehab in one mortgage. You can borrow up to 110% of the after-repair value. It’s more paperwork and takes longer to close, but it opens up properties that standard financing won’t touch.
How do I know if FHA is right for me?
Run the numbers both ways. Use our mortgage calculator to compare FHA and conventional payments at your credit score and down payment. Factor in MIP costs over your expected ownership period — not just the monthly payment. If you’re planning to sell or refinance in 5–7 years, FHA’s permanent MIP matters less. Read the full buying guide for help choosing the right loan type.