Buy a home with as little as 3.5% down
Backed by the Federal Housing Administration, FHA loans are built for buyers who need a more accessible path to homeownership -- whether you are purchasing your first home, rebuilding credit, or working with limited savings.
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FHA vs Conventional
Deciding between FHA and conventional? Here is how they stack up across the factors that matter most.
| Feature | FHA | Conventional |
|---|---|---|
| Down payment | 3.5% | 3 - 20% |
| Credit score | 580+ (500 with 10% down) | 620+ |
| Mortgage insurance | Upfront 1.75% + annual MIP | PMI (removable at 20% equity) |
| Loan limits | $498,257 - $1,149,825 | $766,550 - $1,149,825 |
| Property requirements | Must meet FHA appraisal standards | Standard appraisal only |
| Closing costs | Seller can contribute up to 6% | Seller can contribute 3-9% |
| Best for | First-time buyers, lower credit | Good credit, higher down payment |
Who is an FHA loan right for?
First-time homebuyers
You have never owned a home and need a forgiving entry point. FHA loans accept lower credit scores, smaller down payments, and higher debt-to-income ratios than most conventional programs -- making homeownership realistic even if your financial profile is still maturing.
Buyers with lower credit
Your credit score sits between 580 and 660, a range where conventional lenders may charge steep rate premiums or require larger down payments. FHA pricing is less sensitive to credit tier, so you get a more competitive rate without waiting years to improve your score.
Buyers with limited savings
You have enough saved for 3.5% down but not much more. FHA allows your entire down payment to come from gift funds, down payment assistance programs, or employer grants -- and sellers can contribute up to 6% toward your closing costs.
Buyers after bankruptcy or foreclosure
A past financial setback does not permanently disqualify you. FHA waiting periods are shorter than conventional requirements: two years after Chapter 7 bankruptcy and three years after foreclosure, compared to four and seven years for most conventional loans.
Understanding FHA mortgage insurance
Every FHA loan carries two forms of mortgage insurance premium (MIP). It is the trade-off for the program's flexible qualification standards, and understanding the costs upfront helps you plan your budget.
Upfront MIP (UFMIP)
A one-time charge of 1.75% of the base loan amount, due at closing. On a $300,000 loan this equals $5,250. Most borrowers roll it into the loan balance rather than paying out of pocket, bringing the financed amount to $305,250.
Annual MIP
Paid monthly as part of your mortgage payment, annual MIP typically runs 0.55% of the loan balance for 30-year loans with less than 5% down. On a $300,000 loan that translates to roughly $138 per month. Rates vary slightly based on loan term, amount, and loan-to-value ratio.
When can you stop paying MIP?
If you put down less than 10%, MIP lasts the life of the loan. With 10% or more down, it drops off after 11 years. Many homeowners eliminate MIP sooner by refinancing into a conventional loan once they reach 20% equity -- on a $300,000 purchase with 3.5% down, that typically takes 7 to 10 years depending on appreciation and extra payments.
FHA MIP vs conventional PMI
Conventional PMI on a $300,000 loan at 5% down runs roughly $125 per month and can be removed at 20% equity. FHA MIP at the same loan amount costs about $138 per month but sticks for the loan's full term. If you plan to stay in the home long-term, refinancing to conventional once you build equity is often the most cost-effective path.
FHA property requirements
Because the government insures FHA loans, the property must meet minimum standards set by HUD. An FHA-approved appraiser will evaluate the home during the appraisal process.
Safety
The home must be free of hazards that could harm occupants. This includes functioning smoke detectors, safe stairways and railings, no exposed wiring, no lead-based paint hazards in homes built before 1978, and adequate egress from bedrooms.
Structural soundness
The foundation, roof, and load-bearing walls must be in good condition. The appraiser checks for cracks, water damage, termite damage, and any signs of structural failure. Major repairs must be completed before closing.
Livability
The property needs working plumbing, electrical, heating, and hot water. It must have a functional kitchen and bathroom, adequate ventilation, and be connected to a public water supply or have an approved well and septic system.
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Frequently asked questions
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