An FHA loan is a mortgage insured by the Federal Housing Administration (part of HUD). The FHA doesn't lend money directly — it insures private lenders against losses if you default. This government backing lets lenders offer mortgages to borrowers who might not qualify for conventional loans: lower credit scores, smaller down payments, and higher debt-to-income ratios.
Minimum Down Payment
3.5%
(with 580+ FICO)
Minimum Credit Score
500-579
(10% down required under 580)
Max DTI Ratio
43-57%
(with compensating factors)
Mortgage Insurance
MIP
Upfront + Annual (for life of loan in most cases)
The most common FHA loan. For purchasing a primary residence with 3.5% down (580+ FICO). Loan limits vary by county — typically $498,257 in standard areas up to $1,149,825 in high-cost areas (2026 limits). The property must meet FHA minimum property standards and pass an FHA appraisal.
Purchase and renovate a fixer-upper with one loan. The Limited 203(k) covers up to $35,000 in repairs (non-structural). The Standard 203(k) covers major structural repairs, additions, and complete renovations with no specific dollar cap. You can finance the purchase price PLUS renovation costs into a single FHA mortgage. Minimum $5,000 in eligible renovations required.
Finance energy-efficient improvements (solar panels, insulation, HVAC, windows) into your FHA purchase or refinance loan. The cost of improvements can be added to the base loan amount above standard limits. Must be cost-effective — savings must exceed costs over the improvement's life.
Refinance an existing FHA loan with minimal documentation. No appraisal required. No income verification. No credit qualification (though lenders may check). Must be current on payments. Must show a "net tangible benefit" — typically at least a 0.5% rate reduction or switching from ARM to fixed. Can roll closing costs into the loan.
Refinance any loan type (FHA or non-FHA) into an FHA loan and take cash out. Max LTV: 80%. Must have made 12 months of on-time payments. Requires full documentation and appraisal. Cash can be used for any purpose — debt consolidation, home improvements, education, etc.
FHA loans require two types of mortgage insurance:
| MIP Type | Amount | When Paid | Duration |
|---|---|---|---|
| Upfront MIP (UFMIP) | 1.75% of loan amount | At closing (can be financed) | One-time |
| Annual MIP | 0.50%–0.55% of loan amount per year | Monthly with mortgage payment | 11 years or life of loan |
Important MIP Rule: For loans with less than 10% down, MIP is for the life of the loan — it never drops off. For loans with 10%+ down, MIP cancels after 11 years. This is a key difference from conventional PMI, which automatically cancels at 78% LTV. If you eventually build 20%+ equity, consider refinancing into a conventional loan to eliminate MIP.
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Min Down Payment | 3.5% | 3% (HomeReady / Home Possible) |
| Min Credit Score | 500-580 | 620 |
| Mortgage Insurance | MIP: 1.75% upfront + 0.50-0.55% annual (often for life) | PMI: Cancels automatically at 78% LTV |
| Max DTI | 43-57% | Typically 43-50% |
| Gift Funds | 100% of down payment can be gifted | Gifts allowed but may require own funds |
| Property Types | 1-4 unit primary residence | Primary, second home, investment |
| Best For | Lower credit, small down payment, first-time buyers | Strong credit, larger down payment, PMI cancellation |