FHA Loan
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration that allows buyers to purchase a home with as little as 3.5% down and credit scores as low as 580. FHA loans are popular with first-time homebuyers because of their flexible qualifying requirements. The tradeoff is mandatory mortgage insurance premiums (MIP) for the life of the loan in most cases.
FHA loans are issued by FHA-approved direct lenders and other private lenders, with the FHA insuring the loan to cover lender losses if a borrower defaults. This government guarantee allows lenders to offer more flexible terms. As of 2025, FHA loan limits vary by county — in most areas the limit is around $524,225 for a single-family home; high-cost areas can go up to $1,209,750.
All FHA loans require both an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount and an annual MIP of 0.55% (for most borrowers). On a $300,000 FHA loan, UFMIP is $5,250 (typically rolled into the loan) and annual MIP is $1,650, or about $138/month. With conventional loans, PMI disappears once you reach 20% equity; FHA MIP generally stays for the life of the loan if you put less than 10% down.
FHA loans can be a powerful first step into homeownership, but borrowers who improve their credit and equity over time often refinance into a conventional loan to shed the ongoing MIP. Running a comparison between FHA and conventional options with your loan officer is always worthwhile.
Key Takeaway
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration that allows buyers to purchase a home with as little as 3.5% down and credit scores as low as 580. FHA loans are popular with first-time homebuyers because of their flexible qualifying requirements. The tradeoff is mandatory mortgage insurance premiums (MIP) for the life of the loan in most cases.
Related Terms
Frequently Asked Questions
3.5% with a credit score of 580 or higher. Buyers with scores between 500–579 need at least 10% down.
If you put down less than 10%, FHA mortgage insurance lasts for the life of the loan. With 10% or more down, MIP drops off after 11 years.
FHA loans are for primary residences only and the home must meet FHA minimum property standards. Investment properties and second homes do not qualify.
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