FHA Loan Basics
FHA loans are government-backed mortgages designed to help first-time homebuyers and those with less-than-perfect credit. The Federal Housing Administration insures these loans, allowing lenders to offer more favorable terms. Key benefits include down payments as low as 3.5% and more lenient credit score requirements (typically 580+ for 3.5% down, 500-579 for 10% down).
The tradeoff for easier qualification is mortgage insurance premiums (MIP). FHA loans require both upfront MIP (1.75% of loan amount, typically rolled into the loan) and annual MIP (0.55-1.05% depending on loan amount and term, paid monthly). Unlike conventional PMI which can be removed at 20% equity, FHA MIP lasts the loan's life if you put down less than 10%, or 11 years if you put down 10%+.
FHA loans suit buyers who can't afford large down payments or have credit scores in the 600-700 range. However, if you have strong credit (720+) and can put down 20%, conventional loans often cost less long-term due to no PMI/MIP. FHA also has loan limits ($498,257 in most areas, higher in expensive markets). Run the numbers comparing FHA to conventional to determine your best option.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Minimum 580 credit score for 3.5% down (500-579 requires 10% down), debt-to-income ratio under 43%, property must be your primary residence, and must meet FHA appraisal standards.
Only by refinancing to a conventional loan once you have 20% equity. If you put down 10%+, MIP automatically cancels after 11 years. If you put down less than 10%, MIP lasts the full loan term.
In 2024, $498,257 for most areas, up to $1,149,825 in high-cost areas. Limits vary by county based on median home prices. Check HUD's website for your area's specific limit.
Yes, but typically only for one property at a time. You must move for work, grow out of your home, or have other qualifying circumstances to have multiple FHA loans simultaneously.
FHA suits lower credit scores (under 700) or small down payments (under 10%). Conventional is better for strong credit (720+) and 10%+ down payment. Compare total costs including PMI/MIP over your expected ownership period.