FHA Loans

An FHA loan is a mortgage insured by the Federal Housing Administration, designed to make homeownership reachable for buyers with smaller down payments or imperfect credit. You can buy with as little as 3.5% down with a credit score of 580 or higher, and FHA’s pricing is far more forgiving of mid-600s credit than conventional lending. The trade-off is mortgage insurance: an upfront premium plus a monthly one that, in most cases, lasts as long as the loan.

How an FHA loan works

The FHA doesn’t lend money. It insures loans made by approved lenders, so if a borrower defaults, the FHA covers the lender’s loss. That guarantee is what lets lenders approve borrowers that conventional guidelines would price out or decline. The risk is absorbed by the FHA’s insurance fund, which is paid for by the borrowers’ mortgage insurance premiums.

For you, the mechanics feel like any other mortgage: you apply through an FHA-approved lender like us, the home gets appraised, and you close. FHA loans are almost always fixed-rate, most commonly on 30-year terms, though 15-year terms and FHA ARMs exist.

FHA loans are for primary residences only, with no second homes or pure investment properties. One notable exception to the spirit of that rule: you can buy a 2-4 unit property and rent out the other units, as long as you live in one.

2026 loan limits: $541,287 for a single-family home in most counties (the “floor”), up to $1,249,125 in designated high-cost areas. Limits are set county by county and change annually.

Who qualifies

FHA’s requirements are the most forgiving of any mainstream purchase program that doesn’t require military service or a rural address:

Credit score of 580+ for the 3.5% down payment; scores of 500–579 require 10% down. Most lenders’ practical floor is around 580.
Down payment of 3.5%, which can come entirely from gift funds from family, with no personal savings requirement.
Debt-to-income ratio commonly allowed up to around 50%, sometimes higher with strong compensating factors. That’s more room than most conventional approvals.
Two years of employment history, with standard income documentation.
Shorter waiting periods after credit events: generally two years after Chapter 7 bankruptcy discharge and three years after foreclosure, versus longer conventional waits.
The home must pass an FHA appraisal, which checks basic health-and-safety condition (functioning utilities, no exposed wiring, no peeling paint in pre-1978 homes) along with value.

What it costs

FHA’s costs come in three layers:

Interest rate. Often competitive with or lower than conventional rates for the same borrower, especially at mid-600s credit scores, because FHA pricing is less credit-tiered.
Upfront mortgage insurance premium (UFMIP): 1.75% of the loan amount, almost always financed into the loan rather than paid in cash.
Monthly mortgage insurance premium (MIP): 0.55% annually for most borrowers (as of 2026, for typical 30-year loans with minimal down payments; rates vary by loan size, term, and down payment). With less than 10% down, MIP lasts the life of the loan; with 10%+ down, it drops after 11 years.

That life-of-loan insurance is the fact that shapes long-term FHA strategy: many borrowers refinance into a conventional loan once they reach 20% equity and their credit has improved, shedding the MIP. Model your payment including MIP in our calculator suite.

Pros and cons

Pros:

3.5% down with a 580+ score, one of the lowest barriers to entry in mainstream lending
Credit-forgiving pricing: mid-600s scores get far better deals than conventional would offer
Entire down payment can be gifted
Higher debt-to-income allowances than most conventional approvals
Shorter waits after bankruptcy or foreclosure
2-4 unit properties allowed if you live in one unit

Cons:

Mortgage insurance is both upfront (1.75%) and monthly, and with minimum down, the monthly portion never falls off
Loan limits ($541,287 in most areas for 2026) sit well below conventional’s $832,750, which matters in pricier markets
Primary residences only
The stricter appraisal can complicate offers on homes in rough condition; for genuine fixer-uppers, look at the FHA 203(k) renovation loan

FHA vs. conventional

The real-world decision rule is mostly about credit:

Score around 700+ and 5%+ to put down: conventional usually wins, because cancellable PMI beats permanent MIP and there’s no 1.75% upfront premium.
Score in the low-to-mid 600s: FHA usually produces the lower total payment, sometimes dramatically, because conventional pricing punishes the score while FHA’s barely notices it.
In between: price both. The answer flips based on down payment, loan size, and current PMI market pricing, a comparison we run for you in minutes.

If you’re eligible for a VA loan, it beats FHA in nearly every dimension (zero down and no monthly mortgage insurance), so check that eligibility first.

Getting started with Priority Home Mortgage

Priority Home Mortgage is a direct lender headquartered in Grand Rapids, Michigan, with branch teams across Michigan, Florida, Colorado, Tennessee, and North Carolina. We underwrite FHA loans in-house every week and will price your scenario on both FHA and conventional so you can see the actual numbers rather than rules of thumb. Talk to a local loan officer about where your credit and down payment land, or start with our quick quote form. It takes a few minutes and doesn’t obligate you to anything.

FHA Loans: your questions, answered

What credit score do I need for an FHA loan?

FHA's official floor is 500, but with a score of 580 or higher you qualify for the 3.5% minimum down payment; between 500 and 579 the required down payment jumps to 10%. In practice, most lenders set their own minimums around 580, and some go lower. If you're near a threshold, talk to a loan officer before assuming you're out.

Do FHA loans take longer or have trouble getting offers accepted?

FHA closings run on essentially the same timeline as conventional ones. The appraisal is a bit stricter about property condition (peeling paint, missing handrails, and safety items can be flagged), which is why some sellers of fixer-uppers prefer conventional offers. On a home in decent shape, it's rarely an issue.

Does FHA mortgage insurance ever go away?

Only in one case: if you put at least 10% down, the monthly MIP ends after 11 years. With the standard 3.5% down, MIP lasts the life of the loan. The common exit is refinancing into a conventional loan once you have 20% equity and your credit supports it. Many FHA borrowers treat the loan as a starting point, not a forever loan.

Is an FHA loan only for first-time buyers?

No. Anyone can use an FHA loan as long as the home will be your primary residence and you meet the credit and income requirements. Repeat buyers use FHA regularly, especially after credit events like a past foreclosure or bankruptcy, where FHA's waiting periods are shorter than conventional ones.

Can I buy a duplex or fourplex with an FHA loan?

Yes. FHA allows 2-, 3-, and 4-unit properties as long as you live in one unit as your primary residence, and the loan limits are higher for multi-unit properties. This 'house hacking' setup lets rental income from the other units help cover the mortgage, and part of that income can often be counted toward qualifying.

What is the FHA loan limit in 2026?

For a single-family home, the FHA floor is $541,287 in most U.S. counties, and the ceiling in designated high-cost areas is $1,249,125. Limits are higher for 2-4 unit properties and are set county by county, so check your specific market. These figures reset annually.