Programme
FHA Loan
A low down payment, bought with mortgage insurance that usually never stops.
An FHA loan is insured by the Federal Housing Administration, which is why a lender will accept a smaller down payment and a thinner credit file than a conventional loan would. The insurance is not free and it is not temporary: there is a premium at closing and a premium every month, and on the ordinary low-down-payment FHA loan the monthly one is charged for as long as the loan exists. That single rule is the most misunderstood number in American mortgage lending, and it is the reason this page leads with cost rather than with access.
- 3.5% down at a 580 credit score
- 10% down between 500 and 579
- The whole down payment may be a gift
- Assumable by a later buyer
Floor four
What it gives you
The down payment is small, and it can come from someone else
3.5% of the purchase price at a credit score of 580 or above, and the entire amount may be an eligible gift from family, an employer or an approved assistance programme. The one source it may not come from is anyone with an interest in the sale.
The credit file is read more forgivingly
FHA underwriting is written to accept a shorter or more damaged credit history than a conventional loan will, and it puts more weight on the last twelve months than on the worst month in the file.
The debt ratio has more room in it
FHA guidelines allow a higher ratio of total monthly obligations to income than conventional underwriting typically will, particularly where the automated system finds compensating factors such as reserves or a long stable job.
The loan is assumable
A later buyer who qualifies may take over the loan on its existing terms rather than take out their own. That is worth little when rates are low and a great deal when they are not — and it is a feature a conventional loan does not have.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
The mortgage insurance does not stop at 80% loan-to-value
This is the thing to take away from the page. Annual MIP runs for the LIFE OF THE LOAN when the loan-to-value at origination is above 90%, and for eleven years when it is 90% or below (HUD Mortgagee Letter 2013-04). Cancellation at 80% is the conventional PMI rule, under a different law, and it does not apply here. On a 3.5%-down purchase — which starts at 96.5% — the premium is still being charged in year twenty-eight. Any calculator that stops FHA MIP at 80% is understating your cost by a five-figure sum, and it understates it in the direction that makes the loan look better.
- Trade-off 02
You pay 1.75% of the loan before you have made a payment
Up-front MIP is 1.75% of the base loan amount (HUD Handbook 4000.1). Almost everyone finances it, which means it is added to the balance — so you borrow it, you pay interest on it for the whole term, and you start above the purchase price of the house. On a small down payment that can leave you owing more than the home is worth from the first day.
- Trade-off 03
The appraisal is also an inspection, and the seller may not want it
An FHA appraiser checks the property against HUD's Minimum Property Requirements as well as valuing it. Peeling paint on a pre-1978 house, a missing handrail, a roof near the end of its life — any of these can be called out and must be fixed before closing. A seller with several offers sometimes takes the one that will not do that.
- Trade-off 04
It only works for a home you are going to live in
FHA insures loans on principal residences. It is not a route to a rental, a flip or a second home, and the occupancy certification you sign at closing is a representation you have to be able to stand behind.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| Minimum down payment | 3.5% of the purchase price at a credit score of 580 or above. 10% at 500 to 579. | HUD Handbook 4000.1, II.A.2 |
| Up-front MIP | 1.75% of the base loan amount, payable at closing or financed into the loan. | HUD Handbook 4000.1, II.A.2 |
| Annual MIP rate | Charged monthly, at a rate set by base loan amount, loan-to-value and term. On a term over 15 years at or below the tier threshold it is 0.50% to 0.55% of the balance a year; above the threshold, 0.70% to 0.75%. | HUD Mortgagee Letter 2023-05 |
| How long annual MIP runs | For the life of the loan when the loan-to-value at origination is above 90%. For 11 years when it is 90% or below. There is NO cancellation at 80% loan-to-value — that is the conventional PMI rule and it does not apply to an FHA loan. | HUD Mortgagee Letter 2013-04 |
| Loan limits | A floor and a ceiling are set each year by HUD and vary by county and by the number of units. Look up the limit for the county you are buying in rather than a national figure. | 24 CFR 203.18; HUD annual FHA loan limit notice |
| Occupancy | The property must be owner-occupied as a principal residence. FHA does not insure loans on investment property. | HUD Handbook 4000.1, II.A.1 |
| Property condition | The home must meet HUD's Minimum Property Requirements, assessed by the FHA appraiser at the same visit as the valuation. | HUD Handbook 4000.1, II.A.3 |
| Source of the down payment | Gift funds are allowed in full, but the seller, the builder, the agent or anyone else with an interest in the sale may not be the source of the borrower's minimum required investment. | 12 U.S.C. 1709(b)(9)(C); HUD Handbook 4000.1, II.A.4 |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- A credit score of 580 or above for the 3.5% down payment; 500 to 579 requires 10% down
- Income and employment that can be documented and verified
- The property must be your principal residence
- A total debt ratio within FHA guidelines, as read by the automated underwriting system
- The property must pass an FHA appraisal against HUD's Minimum Property Requirements
- The loan amount must be within the FHA limit for that county and unit count
Ground floor
How it goes, top to bottom
Find out what the insurance actually costs first
Before anything else, run the up-front premium, the annual premium and the duration rule against the loan you are contemplating. If the answer changes your mind, it should change it now rather than in year twelve.
Get the credit file and the down-payment source settled
The score decides whether you are on the 3.5% or the 10% rung. If any of the money is a gift, the donor's letter and the paper trail of the transfer are needed early, not at the end.
Pre-approval, then the offer
A pre-approval is an underwriter's read of your documents, not a rate lock and not a commitment. It tells you and the seller what the file supports.
The FHA appraisal
An FHA-assigned appraiser values the property and checks it against the Minimum Property Requirements. Anything called out has to be resolved before the file can close, and who pays for that is a negotiation.
Underwriting and closing
The file is read against the FHA rulebook, conditions are cleared, and you read the Closing Disclosure line by line against the Loan Estimate you were given at the start.
FHA against a conventional loan, on the points that matter
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% at 580+; 10% at 500–579 | 3% on some first-time-buyer programmes; 5% is the common floor |
| Mortgage insurance | 1.75% up-front MIP plus annual MIP, charged monthly | Borrower-paid PMI while the loan-to-value is above 80% |
| Does the insurance ever end? | Not above 90% LTV at origination — it runs for the loan's life. 11 years at or below. | Yes. Request at 80% of the original value, automatic at 78% (HPA 1998). |
| Credit | A published floor of 580 for the low down payment | No published federal floor; set by the automated underwriting and the lender |
| Property standard | Must meet HUD's Minimum Property Requirements | An ordinary appraisal; no federal property condition rulebook |
| Occupancy | Principal residence only | Primary home, second home or investment property |
| Assumable by a later buyer | Yes, if they qualify | No |
This table scrolls sideways on a narrow screen.
Questions this raises
Does FHA mortgage insurance really never stop?
On the ordinary low-down-payment FHA loan, no, it does not. HUD Mortgagee Letter 2013-04 sets the duration by the loan-to-value at origination: above 90%, the annual premium runs for the full term of the loan; at 90% or below, it runs for eleven years. Reaching 80% loan-to-value changes nothing, because that threshold belongs to the Homeowners Protection Act, which governs private mortgage insurance on conventional loans. The usual way out of FHA MIP is to refinance into a conventional loan once you have enough equity — and that is a new loan, with new costs and whatever rate exists on that day.
Is the up-front premium refundable if I refinance quickly?
Partly, and only in one situation: if you refinance an FHA loan into another FHA loan within three years, HUD applies a declining refund of the original up-front premium against the new one. Refinance into a conventional loan and there is no refund. The schedule shrinks every month, so the value of that option is largest early.
Can the whole down payment be a gift?
Yes. FHA permits the entire minimum required investment to come from an eligible gift — a family member, an employer, a charitable organisation or an approved down payment assistance programme. What it does not permit is money that originates, directly or indirectly, from the seller, the builder, the agent or anyone else with a financial interest in the transaction.
Is an FHA loan cheaper than a conventional loan?
It depends almost entirely on your credit score and how long you keep the loan. Conventional PMI is priced steeply off the score, so at a lower score FHA is often cheaper in the early years; conventional PMI then cancels and FHA MIP does not, so the comparison usually reverses at some point. The only way to answer it for your situation is to run both, over the number of years you actually expect to hold the loan.
Put your own numbers through it
What does FHA insurance cost over the loan? The fha mip page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.