FHA loans are mortgages insured by the Federal Housing Administration, with eligibility based on factors such as credit, income and the property. They can allow a down payment as low as 3.5% for borrowers who meet the applicable requirements, but they also include mortgage insurance costs.
That combination can make an FHA loan accessible while adding to the long-term cost of borrowing. Understanding eligibility, down-payment rules and insurance is essential to deciding whether this type of mortgage fits your finances.
| Item | Threshold or rate | What it applies to |
|---|---|---|
| Minimum down payment | 3.5% | Credit score of at least 580 |
| Minimum down payment | 10% | Credit score from 500 through 579 |
| Minimum credit score | 500 | FHA minimum; lender standards may be stricter |
| Upfront mortgage insurance | 1.75% | Base loan amount |
- 3.5% Common minimum down payment for an FHA borrower with a credit score of at least 580
- 10% Common minimum down payment for an FHA borrower with a credit score from 500 through 579
- 1.75% Standard upfront FHA mortgage insurance premium as a share of the base loan amount
- $3,500 Upfront premium at 1.75% on a $200,000 base loan
What does FHA mortgage insurance cover?
FHA mortgage insurance protects participating private lenders against losses if a borrower defaults; it does not insure the borrower against missed payments or make the FHA the lender. The Federal Housing Administration, overseen by the U.S. Department of Housing and Urban Development (HUD), insures mortgages made by private lenders, while the borrower pays mortgage-insurance premiums.
Compare the full cost of the mortgage
An FHA-insured loan should be compared with other mortgage offers by looking beyond the down payment. The insurance premium is a cost to the borrower, even though its protection goes to the lender, so compare these terms together:
- Interest rate: the rate offered on the FHA-insured loan versus each alternative.
- Fees: the charges attached to each offer.
- Mortgage-insurance costs: the premiums required for the FHA-insured loan and any competing offer.
- Down payment: compare it as one part of the overall cost, not as the sole measure of affordability.
How much is the FHA down payment?
FHA down payments are generally 3.5% for borrowers with credit scores of at least 580, or 10% for borrowers scoring from 500 through 579. The required amount depends on the borrower’s credit score, and a lender may set stricter requirements than these FHA minimums.
Credit score and minimum investment
- Credit score of 580 or higher: the widely used FHA down-payment threshold is 3.5% of the purchase price.
- Credit score from 500 through 579: the widely used minimum down payment is 10%.
- Credit score below 500: the borrower does not meet FHA’s minimum credit-score standard.
For a $250,000 home purchase, a 3.5% down payment is $8,750, while a 10% down payment is $25,000. These figures cover the down payment only; closing costs and other expenses are additional.
Before budgeting around the 3.5% minimum, check the lender’s requirements: a lender may apply stricter credit or underwriting standards than FHA’s minimums. That can affect both eligibility and the amount needed upfront.
Who and what may qualify for an FHA-insured loan?
An FHA-insured loan may suit a borrower buying a principal residence who qualifies under both the lender’s underwriting rules and Federal Housing Administration requirements. The borrower applies through an FHA-approved lender; FHA approval does not replace that lender’s review of the application.
FHA financing is generally intended for a home the borrower will occupy as a principal residence, not a property bought solely as an investment. The property must also pass an FHA appraisal and meet minimum-property requirements addressing its value and basic safety, security and soundness.
Check the loan limit for the property’s location
FHA mortgage limits vary by county and property type, so there is no single nationwide maximum to use for every purchase. Check HUD’s current FHA mortgage limits for the relevant county and the property type before estimating how much you may borrow.
How do upfront and annual FHA mortgage insurance premiums affect cost?
FHA mortgage insurance adds an upfront premium to the loan’s initial cost and an annual premium, commonly collected monthly, to its ongoing payments. The upfront charge may be paid at closing or financed, while the annual charge depends on loan details.
Upfront premium
The standard FHA upfront mortgage insurance premium (UFMIP) is 1.75% of the base loan amount. On a $200,000 base loan, that is $3,500. A borrower can pay the UFMIP at closing or add it to the mortgage; financing it raises the balance and can increase the interest paid over time.
Annual premium
The annual mortgage insurance premium (MIP) is commonly collected in monthly instalments. Its applicable rate depends on factors including the loan term, loan amount and loan-to-value ratio, so borrowers should check the current HUD schedule and their lender’s loan estimate for the charge that applies to their loan.
When can FHA mortgage insurance make the loan a poor fit?
Compare total cost, not the down payment alone.
An FHA loan can be a poor fit when its lower upfront cash requirement leads to higher total borrowing and insurance costs than a conventional loan. A 3.5% down payment leaves a larger balance than a bigger down payment would, and FHA borrowers also pay mortgage insurance; compare estimated total payments against a conventional loan quote, not just the cash due at closing.
- Down payment: Compare the FHA 3.5% option with the down payment required by the conventional quote.
- Insurance over time: For many FHA loans with an original loan-to-value ratio above 90%, annual MIP lasts for the mortgage term, so include that long-term cost in the comparison.
Account for the upfront premium and cancellation terms.
FHA’s 1.75% upfront mortgage insurance premium (UFMIP) can be financed instead of paid entirely in cash at closing, but financing adds the premium to the debt and can increase the amount owed. Compare both ways of paying it when assessing the loan’s total cost.
Do not count on extra payments automatically ending FHA MIP. Cancellation depends on the loan’s terms and applicable FHA policy, so check the rules for the specific loan before treating additional principal payments as a way to remove insurance.
What should borrowers check before applying?
Before applying for an FHA loan, ask an FHA-approved lender for a written Loan Estimate, verify its credit-score rules, check the applicable HUD mortgage limit and property requirements, and compare the offer with a conventional mortgage on equal terms.
The Loan Estimate should show the interest rate, closing costs, upfront mortgage insurance premium (UFMIP) and projected monthly mortgage insurance premium (MIP). Ask the lender to confirm its credit-score requirement: FHA thresholds of 580 and 500 do not guarantee approval, because the lender decides whether to approve your application.
HUD’s county-level mortgage limit can help you check whether the amount you plan to borrow fits the FHA limit where the property is located. Confirm with the lender that the property and your intended occupancy meet FHA requirements. For a fair cost comparison, request a conventional-mortgage estimate using the same purchase price, down payment and expected ownership period.
- FHA: Review the quoted UFMIP and projected monthly MIP alongside the rate and closing costs.
- Conventional: Compare its rate and costs against the FHA offer using the same purchase price, down payment and ownership period.
Frequently asked questions
Does the FHA lend money directly to homebuyers?
What is the FHA’s minimum down payment?
How much is the upfront FHA mortgage insurance premium?
Does FHA mortgage insurance go away automatically?
Key takeaways
- FHA insures loans from participating lenders; it does not issue the mortgage directly.
- The common FHA down-payment thresholds are 3.5% at a credit score of 580 or higher and 10% for scores from 500 to 579.
- The standard upfront premium is 1.75% of the base loan amount, with annual MIP also affecting cost.
- Check HUD’s county mortgage limit and compare the Loan Estimate with a conventional offer.
