Because the government insures the lender against loss, FHA rules allow smaller down payments and lower credit scores than most conventional loans. The trade-off is mortgage insurance that, for most FHA buyers, lasts as long
How much do you need to put down?
The minimum is 3.5% of the price if your credit score is 580 or higher; HUD caps a purchase loan at 96.5% of the home’s value. With a score from 500 to 579, the maximum is 90%, so you need at least 10% down. Below 500,
The down payment can come from savings or, within FHA’s rules, from a gift or a down payment assistance program. Individual lenders can set higher score
What does FHA mortgage insurance cost?
Every FHA loan carries two charges, together called the mortgage insurance premium. The upfront premium is 1.75% of the base loan amount and is usually added to the loan. The annual premium is paid monthly with
Under HUD Mortgagee Letter 2023-05, the annual rate on a loan longer than 15 years, at or under the national conforming loan limit, is 0.55% if you put down less than 5% and 0.50% with 5% or more. Larger loans pay 0.75% or 0.70%. Put down at least 10% and the annual premium ends after 11 years; put down less and it lasts for the life
Who can get an FHA loan?
FHA loans are for a home you’ll live in as your primary residence, from one to four units. You don’t have to be a first-time homebuyer. The home has to meet HUD’s property standards, which an
Lenders also look at your debt-to-income ratio. For loans underwritten by hand, HUD’s baseline is 31% of income for housing and 43% for all debts, with higher ratios allowed for borrowers with strengths such as cash reserves. Loans approved through FHA’s automated system
How big can an FHA loan be?
FHA sets loan limits by county each year, and they’re higher in expensive areas; HUD publishes the limit for every county. The national conforming loan limit that FHA uses as its premium threshold is $832,750 for a one-unit
FHA loans are generally an assumable mortgage, which a later buyer can take over with the lender’s approval. That can be worth something to a buyer when rates have risen
Is FHA cheaper than a conventional loan?
It depends on your credit and down payment. FHA mortgage insurance costs the same whatever your credit score, while private mortgage insurance on a conventional loan is priced by score and down payment. The CFPB says PMI is generally cheaper for borrowers with good credit, and it can be cancelled. Compare a Loan
FHA costs on a $350,000 home with 3.5% down
| Purchase price | $350,000 |
|---|---|
| Down payment (3.5%) | $12,250 |
| Base loan amount | $337,750 |
| Upfront premium (1.75%) | $5,911 |
| Loan with the upfront premium added | $343,661 |
| Annual premium (0.55%), first year | About $1,858, or $155/month |
The annual premium is figured on the loan balance, so it falls slowly as you pay the loan down. With less than 10% down, it lasts for the life of the
Common mistakes
- Assuming FHA loans are only
for first-time buyers. - Expecting FHA mortgage insurance to drop off at 20% equity the way
conventional PMI can. - Forgetting the 1.75% upfront premium when
comparing loan amounts. - Assuming HUD’s 580 minimum is
every lender’s minimum.
Questions
Can you get rid of FHA mortgage insurance?
With less than 10% down, the annual premium lasts for the life of the loan, so the usual way out is refinancing into a conventional loan once you have enough equity. With 10% or more down, it ends
What credit score do you need for an FHA loan?
HUD allows scores as low as 500 with at least 10% down, and requires 580 or higher for the 3.5% minimum down payment. Individual lenders may
Can you buy a rental property with an FHA loan?
Not a property you won’t live in. You can, though, buy a two- to four-unit home, live in one unit and rent
Sources
- HUD: FHA Single Family Housing Policy Handbook 4000.1
- HUD: Mortgagee Letter 2023-05 (annual MIP rates)
- FHFA: Conforming loan limit values for 2026
- CFPB: What is an FHA loan?
- CFPB: What is mortgage insurance and how does it work?
Written and checked by the Broker & Agent team on October 2, 2026. General information, not legal, tax or lending advice. Something out of date? Tell us.