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FHA Loan
An FHA loan is a mortgage insured by the Federal Housing Administration that allows down payments as low as 3.5% with credit scores of 580 or higher. FHA loans are popular with first-time homebuyers.
How It Works
FHA loans are government-backed mortgages designed to make homeownership accessible to borrowers with lower credit scores and smaller down payments. The Federal Housing Administration doesn't lend money directly — it insures the loan, which reduces risk for lenders and allows them to offer more favorable terms. FHA loans require a minimum 3.5% down payment with a credit score of 580+, or 10% down with scores of 500-579. They charge both an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount and an annual MIP of 0.55% for most borrowers. The biggest drawback: if you put less than 10% down, MIP lasts for the life of the loan and cannot be cancelled (unlike conventional PMI). FHA loan limits vary by county, with the standard limit at $498,257 and high-cost areas up to $1,149,825 in 2024.
Key Facts
Minimum down payment: 3.5% (with 580+ credit score)
Credit score minimum: 500 (with 10% down) or 580 (with 3.5% down)
Upfront MIP: 1.75% of loan amount (can be rolled into loan)
Annual MIP: 0.55% for most borrowers
MIP lasts for life of loan if down payment is less than 10%
Loan limits: $498,257 standard, up to $1,149,825 in high-cost areas (2024)
Property must meet FHA minimum property standards
Example
Home price: $250,000. FHA down payment at 3.5%: $8,750. Loan amount: $241,250. Upfront MIP (1.75%): $4,222 (rolled into loan). New loan balance: $245,472. Annual MIP: $1,327/year or $111/month added to your payment.
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Frequently Asked Questions
No. FHA loans are available to anyone who qualifies, including repeat buyers. However, FHA loans can only be used for primary residences — not investment properties or vacation homes.
Yes. Many borrowers start with FHA and refinance into a conventional loan once they have 20% equity or their credit score improves. This eliminates the lifetime MIP requirement and can save hundreds per month.