# FHA loan

> An FHA loan is a mortgage insured by the Federal Housing Administration that allows as little as 3.5% down with a credit score of 580 or higher. Borrowers pay an upfront and an annual mortgage insurance premium.

Also called: FHA mortgage, Federal Housing Administration loan. Topic: Mortgages and loans.

Because the government insures the lender against loss, FHA rules allow smaller down payments and lower credit scores than most [conventional loans](https://brokerandagent.com/glossary#conventional-loan). The trade-off is mortgage insurance that, for most FHA buyers, lasts as long as the loan.

## How much do you need to put down?

The minimum is 3.5% of the price if your [credit score](https://brokerandagent.com/glossary#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, you aren’t eligible.

The [down payment](https://brokerandagent.com/glossary#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 minimums than HUD’s.

## What does FHA mortgage insurance cost?

Every FHA loan carries two charges, together called the [mortgage insurance premium](https://brokerandagent.com/glossary#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 your mortgage payment.

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 of the loan.

## 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](https://brokerandagent.com/glossary#first-time-homebuyer). The home has to meet HUD’s property standards, which an FHA appraiser checks.

Lenders also look at your [debt-to-income ratio](https://brokerandagent.com/glossary/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 can go higher.

## 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](https://brokerandagent.com/glossary#conforming-loan-limit) that FHA uses as its premium threshold is $832,750 for a one-unit home in 2026.

FHA loans are generally an [assumable mortgage](https://brokerandagent.com/glossary#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 since you borrowed.

## 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](https://brokerandagent.com/glossary/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 Estimate for each.

## 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 loan. Figures rounded.

## 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 after 11 years.

### 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 ask for more.

### 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 out the others.

Calculator: [Mortgage calculator](https://brokerandagent.com/tools/mortgage-calculator)

## Related terms

- [Mortgage insurance premium](https://brokerandagent.com/glossary#mortgage-insurance-premium): A mortgage insurance premium is the insurance charge on an FHA loan: an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium paid monthly that lasts the life of the loan with less than 10% down.
- [Conventional loan](https://brokerandagent.com/glossary#conventional-loan): A conventional loan is a mortgage that isn’t insured or guaranteed by a government agency such as FHA, VA or USDA. Most follow Fannie Mae and Freddie Mac rules and require mortgage insurance with less than 20% down.
- [First-time homebuyer](https://brokerandagent.com/glossary#first-time-homebuyer): A first-time homebuyer, for many loan and assistance programs, is anyone who hasn’t owned a principal residence in the past three years, not only someone who has never owned. Each program sets its own definition.
- [Down payment](https://brokerandagent.com/glossary#down-payment): A down payment is the part of a home’s price you pay in cash at closing instead of borrowing. It’s usually stated as a percentage of the price, and less than 20% down on a conventional loan typically means paying mortgage insurance.
- [Credit score](https://brokerandagent.com/glossary#credit-score): A credit score is a three-digit number, usually from 300 to 850, that predicts how likely you are to repay debt based on your credit history. Mortgage lenders use it to decide whether to approve you and at what rate.
- [VA loan](https://brokerandagent.com/glossary/va-loan): A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans and some surviving spouses. Most borrowers can buy with no down payment and no mortgage insurance but pay a one-time funding fee.

## Sources

- [HUD: FHA Single Family Housing Policy Handbook 4000.1](https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh.pdf)
- [HUD: Mortgagee Letter 2023-05 (annual MIP rates)](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf)
- [FHFA: Conforming loan limit values for 2026](https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026)
- [CFPB: What is an FHA loan?](https://www.consumerfinance.gov/ask-cfpb/what-is-an-fha-loan-en-112/)
- [CFPB: What is mortgage insurance and how does it work?](https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/)

Checked 2026-10-02 by the Broker & Agent team. General information, not legal, tax or lending advice.

Source: https://brokerandagent.com/glossary/fha-loan