What Is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), an agency within the U.S. Department of Housing and Urban Development (HUD). The federal government does not lend money directly — instead, it insures FHA-approved private lenders against losses if a borrower defaults. That insurance allows lenders to offer more flexible qualification requirements than conventional loans, making FHA loans a popular choice for first-time buyers and borrowers with limited savings or lower credit scores.
Key Features of an FHA Loan
| Feature | FHA Loan |
|---|---|
| Minimum down payment | 3.5% (credit score 580+); 10% (credit score 500–579) |
| Minimum credit score | 500 (most lenders prefer 580+) |
| Mortgage insurance | Required — upfront MIP + annual MIP |
| Property type | Primary residence only |
| Assumable | Yes — a qualified buyer can take over your FHA loan |
| Debt-to-income ratio | Up to 43% (higher with compensating factors) |
FHA Loan Limits for 2026
FHA loan limits are set annually by HUD and vary by county based on local housing costs. For 2026, the nationwide limits for a single-family home are:
- Low-cost areas (floor): $524,225
- High-cost areas (ceiling): $1,209,750
Most counties fall somewhere between these two figures. High-cost metros such as San Francisco, New York City, and Honolulu generally qualify for limits at or near the ceiling. You can look up your county's specific limit on HUD's website.
FHA Mortgage Insurance Premiums (MIP)
All FHA loans require two forms of mortgage insurance:
- Upfront MIP (UFMIP): 1.75% of the base loan amount, paid at closing. Most borrowers roll this into the loan balance rather than paying out of pocket. On a $300,000 loan, UFMIP equals $5,250.
- Annual MIP: Paid monthly as part of your mortgage payment. For loans with a term greater than 15 years and an LTV above 95%, the current annual rate is 0.55% of the loan balance, or about $137/month on a $300,000 loan.
Unlike PMI on conventional loans, FHA MIP does not automatically cancel when you reach 20% equity. For most FHA borrowers who put down less than 10%, annual MIP lasts for the entire loan term. The only way to eliminate it is to refinance into a conventional loan once you have sufficient equity.
Who Benefits Most from an FHA Loan?
FHA loans are well suited for:
- First-time homebuyers who have not had time to build a large down payment or lengthy credit history.
- Borrowers with credit scores in the 580–679 range who may not qualify for the best conventional rates.
- Buyers in moderate-cost markets whose target home price falls well below the FHA loan limit, making the low down payment highly practical.
- Buyers using gift funds — FHA allows the entire down payment to come from a gift from a family member, employer, or approved nonprofit.
FHA vs. Conventional: A Brief Comparison
The right loan type depends on your credit profile, down payment, and how long you plan to keep the loan:
- Credit score below 620: FHA is generally the only viable option for a conforming-sized loan.
- Credit score 620–679: FHA often has a lower rate, but the mandatory lifetime MIP can make a conventional loan cheaper over time if you plan to stay long-term and can reach 20% equity.
- Credit score 680+: Conventional is usually better — PMI can be cancelled, and loan-level price adjustments are less severe at higher credit tiers.
- Down payment below 10%: Both programs are available, but the FHA MIP burden over a 30-year term can be substantial. Use the FHA Loan Calculator to compare the true cost of each option.
For a comprehensive overview of how FHA loans work in practice, see our guide: What Is an FHA Loan? A Complete Guide. For current eligibility details and requirements, see FHA Loan Requirements for 2026.
Source: HUD — Section 203(b) Mortgage Insurance
This definition is for informational purposes only and does not constitute financial advice.