FHA Loan
An FHA loan is a government-insured mortgage designed for borrowers who don’t have perfect credit or a big down payment — you can get in with 3.5% down and a 580 credit score, which is why it’s the most popular loan type for first-time buyers.
The Federal Housing Administration doesn’t lend you money directly. It insures the loan for your lender, meaning if you default, the government reimburses them. That backstop is why lenders accept riskier borrowers for FHA loans than they would for conventional ones.
FHA Loan Requirements (2026)
| Requirement | Details |
|---|---|
| Credit score | 580+ for 3.5% down; 500–579 for 10% down |
| Down payment | 3.5% minimum (can be 100% gift funds) |
| DTI ratio | 43% standard; up to 50% with compensating factors |
| Employment | 2 years of steady employment history |
| Property type | Primary residence only (1–4 units) |
| Loan limits (2026) | $541,287 standard; up to $1,249,125 in high-cost areas |
| Property standards | Must pass FHA appraisal (safety, soundness, security) |
| Bankruptcy | 2 years after Chapter 7; 1 year into Chapter 13 with court approval |
| Foreclosure | 3-year waiting period |
Mortgage Insurance Premiums (MIP)
This is the price you pay for FHA’s flexibility. There are two components:
Upfront MIP (UFMIP): 1.75% of the loan amount, charged at closing. On a $300,000 loan, that’s $5,250. Almost everyone rolls it into the loan balance rather than paying cash, so your actual loan becomes $305,250.
Annual MIP: 0.55% of the outstanding loan balance per year for most borrowers, divided into 12 monthly payments. On a $300,000 loan, that’s roughly $137/month in year one, gradually decreasing as your balance drops.
The painful part: if you put less than 10% down (which is most FHA borrowers), annual MIP lasts the entire life of the loan. You can’t cancel it. With conventional PMI, it drops off at 78%–80% LTV. FHA’s permanent MIP is a significant long-term cost.
| Down Payment | MIP Duration | Annual MIP Rate |
|---|---|---|
| Less than 10% | Life of loan | 0.55% |
| 10% or more | 11 years | 0.50% |
FHA Pros and Cons
| Pros | Cons |
|---|---|
| 3.5% down payment (lowest mainstream option) | MIP for life of loan (under 10% down) |
| Credit scores down to 580 (or 500 with 10% down) | 1.75% upfront MIP adds to balance |
| 100% of down payment can be gift funds | Loan limits cap buying power |
| Higher DTI limits (up to 50%) | Property must meet FHA standards |
| Competitive rates (often 0.25% below conventional for lower credit scores) | Primary residence only — no investment properties |
| Assumable (huge advantage in low-rate environments) | Some sellers prefer conventional offers |
When FHA Beats Conventional (and Vice Versa)
FHA wins when: Your credit score is below 680, your down payment is under 5%, your DTI is between 43%–50%, or your down payment comes entirely from gift funds.
Conventional wins when: Your credit score is 700+, you can put 5%+ down, and you want PMI that eventually disappears. Over 30 years, the savings from droppable PMI vs. permanent MIP can exceed $40,000.
The crossover point is roughly a 680 credit score with 5% down. Below that line, FHA usually costs less monthly. Above it, conventional almost always wins long-term.
FHA Loan Limits by Area (2026)
| Area Type | 1-Unit | 2-Unit | 3-Unit | 4-Unit |
|---|---|---|---|---|
| Floor (most counties) | $541,287 | $637,950 | $771,125 | $958,350 |
| Ceiling (high-cost areas) | $1,249,125 | $1,472,250 | $1,779,525 | $2,211,600 |
Limits adjust annually based on housing price data from the Federal Housing Finance Agency. High-cost areas include most of coastal California, the New York metro area, and parts of Hawaii, Alaska, and the DC suburbs. Check HUD’s lookup tool for your specific county — some counties fall between the floor and ceiling.
FHA Appraisal vs. Standard Appraisal
An FHA appraisal is more demanding than a conventional appraisal. Beyond estimating market value, the FHA appraiser checks for health and safety issues: peeling paint on pre-1978 homes (lead risk), missing handrails, non-functional HVAC, exposed wiring, roof damage, and water intrusion. If the property fails, the seller must fix the issues before closing — or the deal falls apart.
This extra scrutiny is why some sellers in competitive markets reject FHA offers. They don’t want to risk an FHA appraiser flagging $3,000 in repairs that a conventional appraiser would ignore.
FHA 203(k) Renovation Loans
Standard FHA loans require the property to meet minimum standards — but the 203(k) program lets you buy a fixer-upper and roll repair costs into a single mortgage. You can borrow up to 110% of the home’s after-repair value. There are two versions:
- Limited 203(k): Up to $35,000 in repairs. No structural work. Faster and simpler
- Standard 203(k): No repair cap. Structural changes allowed. Requires a HUD consultant
For a detailed side-by-side breakdown, see our FHA vs. Conventional comparison.
Frequently Asked Questions
Can I refinance out of FHA to drop the MIP?
Yes, and many borrowers do exactly this. Once you’ve built 20% equity (through payments and/or appreciation), refinancing into a conventional loan eliminates the permanent MIP. The break-even point depends on closing costs for the new loan, but it often makes sense by year 3–5. Use our refinance calculator to see if the numbers work for you, and check the mortgage calculator to compare FHA vs. conventional payments at your specific credit score.