The go-to loan for first-time buyers — low down payment, flexible credit, and what the lifetime MIP actually costs you.
FHA loans are insured by the Federal Housing Administration and issued by approved private lenders. They're designed to make homeownership accessible to buyers with lower credit scores or smaller down payments.
| Feature | FHA |
|---|---|
| Down payment | 3.5% (with 580+ credit) or 10% (500–579) |
| MIP upfront | 1.75% of loan amount |
| MIP monthly | 0.55–0.85% annually (loan-balance dependent) |
| Credit score minimum | 500 (580 for 3.5% down) |
| DTI limit | 43% standard, up to 57% with compensating factors |
| Owner-occupied only | Yes |
FHA's mortgage insurance has two components:
1. Upfront MIP (UFMIP): 1.75% of the base loan amount, added to your loan balance at closing (you don't pay it out of pocket — it's rolled in).
2. Annual MIP: Paid monthly, typically 0.55% of the loan balance for most buyers. On a $380,000 loan (after UFMIP is rolled in), that's about $174/mo.
The critical detail: For most FHA loans originated after June 2013 with less than 10% down, MIP lasts the entire life of the loan. You can't cancel it the way you cancel PMI on a conventional loan — you'd need to refinance into a conventional loan once you have 20% equity.
FHA limits vary by county. For 2026:
FHA is the most DPA-compatible loan type. Most down payment assistance programs (including zero-down programs) work by pairing a second lien or grant with an FHA first mortgage. If you qualify for DPA, you can potentially buy with $0 out of pocket.
| You have... | Consider... |
|---|---|
| 580–679 credit score | FHA — lower rate penalty for credit |
| 680+ credit score | Conventional — avoid lifetime MIP |
| 3.5% down, tight budget | FHA |
| 10%+ down, good credit | Conventional likely cheaper long-term |
| High DTI (43–50%) | FHA more flexible |
| Investment property | Not FHA (owner-occupied only) |
Once you have 20% equity (from appreciation + paydown), you can refinance into a conventional loan to eliminate MIP. The savings can be substantial — $150–$300/mo depending on loan size.
Run the break-even analysis: refinance costs ÷ monthly savings = months to break even. If you plan to stay longer than the break-even, the refi makes sense.
Bottom line: FHA is a powerful first step into homeownership for buyers who need flexibility on credit or down payment. The trade-off is lifetime MIP — which is manageable but not free. Plan for the exit.
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