What Is an FHA Loan? Complete Guide

What FHA Loans Are and How They Work

An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development (HUD). Created as part of the National Housing Act of 1934 during the Great Depression, the FHA was established to stabilize the mortgage market, improve housing standards, and make homeownership accessible to more Americans. Today, nearly 90 years later, the FHA continues to serve that mission by insuring mortgages that allow lower credit scores, smaller down payments, and more flexible qualification requirements than most conventional loans.

It is important to understand that the FHA does not actually lend money directly to homebuyers. Instead, the FHA provides mortgage insurance to approved private lenders, including banks, credit unions, and mortgage companies. This insurance guarantees that if a borrower defaults on the loan, the FHA will pay the lender a claim to cover the loss. Because the lender's risk is significantly reduced by this government backing, they can offer more favorable terms to borrowers who might not qualify for conventional financing. Essentially, the FHA acts as a guarantor, standing behind the loan to give lenders the confidence to extend credit to a broader range of borrowers.

FHA loans are originated and serviced by FHA-approved lenders, which include most major banks, mortgage companies, and credit unions. Not every lender offers FHA loans, and among those that do, the specific requirements and pricing can vary. While the FHA sets minimum standards, individual lenders can impose additional requirements called "overlays." For example, while the FHA minimum credit score is 580, a particular lender might require a 620 score. Shopping among multiple FHA-approved lenders is therefore important to find the most competitive terms for your situation.

The scope of the FHA program is enormous. According to HUD, the FHA insured approximately 1.3 million single-family mortgages in fiscal year 2024, representing about 15% of all new mortgage originations. Among first-time homebuyers specifically, the FHA share is much higher, insuring roughly 30% of purchase mortgages for first-time buyers. The program is particularly popular among younger buyers, buyers with moderate incomes, and buyers in communities of color, all groups that historically face greater barriers to conventional financing.

For borrowers, the key advantages of FHA loans include the ability to qualify with credit scores as low as 580 (or 500 with a larger down payment), down payments as low as 3.5%, higher debt-to-income ratio allowances (up to 43% standard, and up to 50% or even 57% with compensating factors), and the ability to use gift funds for the entire down payment. These features make FHA loans a gateway to homeownership for millions of Americans who would otherwise be unable to purchase a home. You can estimate your FHA loan payment using our FHA loan calculator.

FHA Loan Requirements 2026

FHA loans have specific eligibility requirements that borrowers must meet. While these requirements are more lenient than conventional loan standards, they still exist to ensure that borrowers have a reasonable ability to repay the mortgage. Here is a comprehensive overview of the current FHA loan requirements for 2026.

Credit score: The FHA minimum credit score is 580 for a loan with a 3.5% down payment. Borrowers with scores between 500 and 579 may qualify with a 10% down payment. Below 500, FHA financing is not available. In practice, many lenders impose overlays that require higher scores. A survey of major FHA lenders shows that the most common minimum is 620, with some lenders accepting 580 and a few requiring 640 or higher. If one lender declines you based on credit score, it is worth applying with others that may have lower overlay requirements.

Debt-to-income ratio (DTI): The FHA generally allows a front-end DTI (housing expenses divided by gross monthly income) of up to 31% and a back-end DTI (all monthly debts including housing divided by gross income) of up to 43%. However, borrowers with compensating factors, such as significant cash reserves, a history of making similar housing payments, or minimal increases in housing expense, can be approved with back-end DTIs as high as 50% or even 57% through the FHA's automated underwriting system (FHA TOTAL Scorecard). This flexibility is one of the FHA's most significant advantages over conventional lending.

Employment and income: Borrowers must document stable employment and income, typically by providing two years of tax returns, recent pay stubs (covering at least 30 days), W-2 forms for the past two years, and bank statements. Self-employed borrowers need two years of business tax returns. There is no minimum income requirement for FHA loans, but your income must be sufficient to support the proposed mortgage payment within the DTI limits. Gaps in employment must be explained, and recent job changes may require additional documentation.

Property requirements: The home must be your primary residence, located in the United States, and meet FHA minimum property standards. An FHA-approved appraiser must inspect the property and confirm that it meets these standards, which relate to safety, security, and structural soundness. Common issues that can delay or prevent FHA approval include peeling paint (especially in homes built before 1978 due to lead paint concerns), defective roofing, inadequate heating, evidence of water damage, and faulty electrical or plumbing systems. The property must also be one of these eligible types: single-family home, FHA-approved condominium, manufactured home on a permanent foundation, or multi-family property (two to four units) where the borrower occupies one unit.

Bankruptcy and foreclosure waiting periods: If you have experienced a bankruptcy or foreclosure, FHA loans require specific waiting periods. For a Chapter 7 bankruptcy, the waiting period is two years from the discharge date. For a Chapter 13 bankruptcy, you may qualify with as little as one year of satisfactory plan payments with court approval. For a foreclosure, the waiting period is three years from the date of the foreclosure sale. These waiting periods are notably shorter than conventional loan requirements, which typically mandate four years after bankruptcy and seven years after foreclosure.

FHA Down Payment Rules (3.5% Minimum)

The FHA's low down payment requirement is one of its most attractive features and the primary reason many first-time buyers choose FHA financing. Understanding the specific rules around FHA down payments helps you plan your home purchase and maximize the program's benefits.

For borrowers with credit scores of 580 or higher, the minimum down payment is 3.5% of the purchase price. On a $300,000 home, that is $10,500. On a $400,000 home, that is $14,000. Compared to the 20% conventional down payment benchmark ($60,000 to $80,000 on those same homes), the FHA's 3.5% requirement dramatically reduces the upfront cash needed to purchase a home. Even compared to conventional low-down-payment options (3% to 5%), the FHA requirement is competitive, and the FHA is more lenient about the source of those funds.

A particularly valuable feature of FHA loans is that the entire down payment can come from gift funds. A family member, close friend, employer, charitable organization, or government agency can gift you the money for your down payment, and you are not required to contribute any of your own funds. The donor must provide a gift letter confirming that the funds are a gift with no expectation of repayment. Conventional loans, by contrast, often require that at least some portion of the down payment come from the borrower's own savings, depending on the LTV and loan program.

Down payment assistance (DPA) programs are another common funding source for FHA borrowers. Hundreds of state and local government agencies, as well as nonprofit organizations, offer DPA programs that provide grants, forgivable loans, or low-interest second mortgages to help buyers cover their down payment and closing costs. These programs often have income limits and may be restricted to first-time buyers or specific geographic areas. HUD maintains a database of local homebuying programs at its website, and your lender or a HUD-approved housing counselor can help identify programs you may qualify for.

Seller concessions are also permitted on FHA loans, up to 6% of the purchase price. Seller concessions are contributions from the seller toward the buyer's closing costs, prepaid expenses, or discount points. While seller concessions cannot be used for the down payment itself, they can cover the other upfront costs of buying a home, preserving more of your cash for the down payment. On a $350,000 home, a 6% seller concession amounts to $21,000, which can cover the bulk of closing costs and prepaid items. Use the down payment calculator to see how different down payment amounts affect your monthly payment and total loan cost.

One important consideration is that a smaller down payment means a larger loan, which means higher monthly payments and more interest paid over the life of the loan. On a $300,000 home, a 3.5% down payment produces a loan of $289,500, while a 10% down payment produces a loan of $270,000. The $19,500 difference in loan size, at a 6.5% interest rate over 30 years, translates to approximately $123 per month in additional principal and interest, plus additional mortgage insurance costs. Still, for many buyers, the ability to enter the housing market years earlier than they could otherwise justifies these incremental costs.

FHA Mortgage Insurance Premiums Explained

FHA mortgage insurance premiums (MIP) are the primary trade-off for the program's generous qualification requirements. Unlike conventional PMI, which can be canceled once you reach 20% equity, FHA MIP on most loans lasts for the entire term of the mortgage. Understanding MIP costs is crucial for evaluating whether an FHA loan is the right choice for your situation.

FHA MIP has two components. The Upfront Mortgage Insurance Premium (UFMIP) is a one-time charge of 1.75% of the base loan amount, due at closing. On a $300,000 loan, the UFMIP is $5,250. On a $400,000 loan, it is $7,000. The vast majority of FHA borrowers choose to finance the UFMIP into the loan rather than paying it in cash at closing. Financing the UFMIP means your actual loan balance is higher than the original loan amount. For example, a $300,000 loan with financed UFMIP becomes $305,250, and you pay interest on that higher balance for the life of the loan.

The annual MIP is an ongoing charge divided into twelve monthly payments and added to your mortgage payment. The rate depends on the loan amount, LTV ratio, and loan term. For most borrowers (loan amounts of $726,200 or less, LTV above 95%, 30-year term), the annual MIP rate is 0.55% of the outstanding loan balance. On a $305,250 loan balance (after financing the UFMIP), the first year's annual MIP is $1,679, or approximately $140 per month. As the loan balance decreases over time, the monthly MIP amount also gradually decreases, though the percentage rate remains the same.

The cancellation rules for FHA MIP depend on when the loan was originated and how much the borrower put down. For loans originated after June 3, 2013 (which includes all current FHA loans): if your down payment was less than 10%, MIP lasts for the entire 30-year loan term and cannot be canceled. If your down payment was 10% or more, MIP can be removed after 11 years of payments. Since the vast majority of FHA borrowers put down the minimum 3.5%, lifetime MIP applies to most FHA loans. The only way to escape MIP in this situation is to refinance into a conventional loan once you have built sufficient equity (typically 20% or more).

To put the total cost in perspective, consider a $300,000 FHA loan with 3.5% down. The loan amount is $289,500, and with financed UFMIP, it becomes $294,569. The UFMIP cost is $5,066. Over 30 years, the cumulative annual MIP payments total approximately $42,000 to $45,000 (the exact amount depends on how the declining balance affects annual recalculation). So the total mortgage insurance cost for this FHA loan is approximately $47,000 to $50,000. By comparison, a conventional loan for the same amount with PMI at 0.7% annually would cost approximately $16,000 to $20,000 in total PMI before cancellation at 80% LTV. This difference of $30,000 or more is why financial advisors frequently recommend that borrowers with decent credit consider conventional loans, even if the monthly PMI is slightly higher in the early years.

It is worth noting that FHA periodically adjusts MIP rates. The current 0.55% annual rate was established in a rate reduction that took effect in March 2023, down from the previous 0.85%. Future rate changes are possible depending on the financial health of the FHA's Mutual Mortgage Insurance Fund, which Congress requires to maintain a minimum capital reserve ratio of 2%. When the fund is healthy, MIP reductions become more likely.

FHA Loan Limits by State and County

FHA loan limits are the maximum mortgage amounts the FHA will insure in a given county. These limits are set annually by HUD and are based on a percentage of the conforming loan limits established by the Federal Housing Finance Agency (FHFA). FHA limits are currently set at 65% of the conforming loan limit for the area, with a floor and ceiling to ensure accessibility across different housing markets.

For 2026, the FHA loan limit floor (the minimum limit that applies in the lowest-cost housing markets) is $524,225 for a single-family home. This floor applies to the majority of counties in the United States, covering areas where median home prices are well below the national average. Examples include most rural counties and many small to mid-sized metropolitan areas in states like Ohio, Indiana, Kentucky, Mississippi, and Iowa.

The FHA loan limit ceiling (the maximum limit for the highest-cost markets) is $1,209,750 for a single-family home. This ceiling applies in counties where the area median home price exceeds a certain threshold, typically in major metropolitan areas on the coasts. Counties at or near the ceiling include those in the San Francisco Bay Area, New York City metro area, Los Angeles, Seattle, Boston, and parts of Hawaii and Alaska. Between the floor and ceiling are "special exception" areas where limits fall somewhere in between, calibrated to the local median home price.

For multi-unit properties, the limits are higher. A two-unit property has limits ranging from $671,200 (floor) to $1,548,975 (ceiling). A three-unit property ranges from $811,275 to $1,872,225. A four-unit property ranges from $1,008,300 to $2,326,875. These higher limits for multi-unit properties make FHA financing an attractive option for buyers who want to purchase a duplex, triplex, or fourplex as an owner-occupied investment, living in one unit while renting out the others.

It is important to check the specific FHA loan limit for the county where you plan to buy. HUD publishes a searchable database on its website where you can enter any county and see the current FHA limit. If the home you want to buy exceeds the FHA limit for your county, you will need to consider a conventional loan, a jumbo loan, or other financing. In areas at the floor limit, FHA loans cover most homes on the market. In high-cost areas near the ceiling, FHA limits may still fall short of many listings, limiting the program's usefulness. Use our affordability calculator to determine what price range fits your budget within the applicable FHA loan limit for your area.

FHA vs Conventional Loan Pros and Cons

The choice between an FHA loan and a conventional loan is one of the most common decisions facing homebuyers, and the right answer depends on your credit profile, down payment resources, and long-term plans. Here is a balanced comparison of the key differences.

Credit requirements: FHA wins for borrowers with lower credit scores. FHA allows scores as low as 580 (or 500 with 10% down), while most conventional lenders require a minimum of 620, and the best conventional rates are reserved for scores of 740 and above. If your credit score is between 580 and 680, FHA may be your only option, or it may offer significantly better terms than a conventional loan. Above 700, conventional loans become increasingly competitive.

Down payment: FHA requires a minimum of 3.5% with a 580+ credit score. Conventional loans are available with as little as 3% down through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs, but these programs have income limits. Standard conventional loans typically require 5% down. On a $350,000 home, the difference between 3.5% FHA ($12,250) and 5% conventional ($17,500) is $5,250, which could be meaningful for cash-constrained buyers.

Mortgage insurance: This is where conventional loans have a decisive advantage for many borrowers. FHA charges a 1.75% upfront MIP plus 0.55% annual MIP for the life of the loan (with less than 10% down). Conventional PMI varies by credit score but can be as low as 0.3% annually for well-qualified borrowers, and it cancels once you reach 80% LTV. Over the life of the loan, the difference in mortgage insurance costs between FHA and conventional can exceed $30,000 for borrowers with good credit.

DTI flexibility: FHA is generally more lenient on debt-to-income ratios. FHA's automated underwriting system can approve borrowers with back-end DTIs up to 50% or even 57% with compensating factors, while conventional automated underwriting typically caps at 43% to 50%. For borrowers with significant existing debts (student loans, car payments, credit cards), FHA's higher DTI limits may be the difference between approval and denial.

Property flexibility: FHA has stricter property requirements. The home must meet FHA minimum property standards, which means no major safety or structural issues. Conventional appraisals are generally less stringent, focusing primarily on value rather than condition. If you are buying an older home or a fixer-upper, FHA's property standards could create obstacles. However, the FHA 203(k) renovation loan (discussed in the next section) provides a solution for properties that need work.

The general rule of thumb is: if your credit score is below 680 or you have limited down payment funds and no way to avoid PMI on a conventional loan, FHA is likely your best option. If your credit score is above 700 and you can put down at least 5%, a conventional loan will usually save you money over the long run due to lower mortgage insurance costs and the ability to cancel PMI. Run the numbers for your specific situation using our PMI calculator and FHA calculator to compare total costs side by side.

Types of FHA Loans (203b, 203k, HECM)

While most people associate "FHA loan" with the standard purchase mortgage, the FHA actually offers several distinct loan programs designed for different purposes. Each program has its own requirements, benefits, and use cases.

The FHA 203(b) loan is the standard FHA purchase and refinance mortgage, and it is what most people mean when they refer to an "FHA loan." It is used to finance the purchase of a one-to-four-unit primary residence, with all the requirements discussed in this guide (3.5% minimum down payment, 580 minimum credit score, MIP, etc.). The 203(b) is by far the most popular FHA program, accounting for the vast majority of FHA-insured mortgages. It is available as a fixed-rate mortgage with terms of 15 or 30 years, or as an adjustable-rate mortgage with an initial fixed period.

The FHA 203(k) loan is a renovation loan that allows borrowers to finance both the purchase of a home and the cost of repairs or renovations in a single mortgage. There are two versions: the Standard 203(k) for major renovations costing more than $5,000 (with no maximum limit, up to the FHA loan limit), and the Limited 203(k) (formerly called the Streamlined 203(k)) for smaller projects up to $35,000. The 203(k) is an excellent option for buyers who want to purchase a home that needs work but cannot afford to pay for renovations out of pocket. The renovation costs are rolled into the mortgage, so you make one monthly payment. The trade-off is a more complex process involving contractor bids, HUD consultant reviews (for the Standard version), and draw schedules for releasing renovation funds.

The FHA HECM (Home Equity Conversion Mortgage) is the FHA's reverse mortgage program, available to homeowners aged 62 and older. A HECM allows seniors to convert a portion of their home equity into cash, either as a lump sum, monthly payments, or a line of credit, without selling the home or making monthly mortgage payments. The loan balance grows over time as interest accrues, and repayment is deferred until the borrower sells the home, moves out permanently, or passes away. The HECM is the only reverse mortgage product insured by the federal government, providing protections such as non-recourse guarantees (you or your heirs will never owe more than the home is worth) and mandatory counseling before closing.

The FHA Streamline Refinance is not a separate loan product but a refinance option exclusively for existing FHA borrowers. It allows you to refinance your current FHA loan to a lower interest rate with reduced documentation requirements. No appraisal is required (in most cases), and no income verification or credit check is needed. The primary requirement is that the refinance must result in a "net tangible benefit" to the borrower, meaning a lower monthly payment or a switch from an adjustable-rate to a fixed-rate mortgage. The Streamline Refinance retains FHA MIP on the new loan, so it does not eliminate mortgage insurance, but it can significantly reduce your interest rate and monthly payment.

The FHA Energy Efficient Mortgage (EEM) allows borrowers to finance the cost of energy-efficient improvements as part of their FHA purchase or refinance loan. Eligible improvements include solar panels, insulation, new windows, high-efficiency HVAC systems, and other upgrades that reduce energy consumption. The cost of improvements can be added to the loan amount (up to a limit), and the expected energy savings can be used as a compensating factor to qualify for a higher loan amount. This program is underutilized but can be a valuable tool for buyers who want to reduce their long-term utility costs.

Who Should Consider an FHA Loan

FHA loans are designed for specific borrower profiles, and understanding whether you fit one of these profiles helps you determine if FHA is the right program for your home purchase. While FHA loans are open to all eligible borrowers (not just first-time buyers), certain groups benefit most from the program's features.

First-time homebuyers are the primary beneficiaries of FHA loans, and for good reason. If you are buying your first home, you likely have less savings for a down payment, a shorter credit history, and less experience navigating the mortgage process. FHA's 3.5% down payment, lenient credit requirements, and allowance for gift funds address all of these challenges. According to HUD data, approximately 83% of FHA purchase mortgages go to first-time buyers. If you have never owned a home and have a credit score between 580 and 700, FHA should be on your short list of options to evaluate.

Borrowers recovering from financial setbacks find FHA's shorter waiting periods after bankruptcy or foreclosure especially valuable. If you went through a Chapter 7 bankruptcy, FHA allows you to apply just two years after discharge, compared to four years for conventional loans. If you experienced a foreclosure, FHA's waiting period is three years versus seven for conventional. During the waiting period, you need to demonstrate responsible credit behavior by paying all bills on time and rebuilding your credit score. FHA gives you a second chance at homeownership faster than any other mainstream loan program.

Borrowers with high debt-to-income ratios benefit from FHA's flexible DTI limits. If you have student loans, car payments, or other debts that push your back-end DTI above 43%, conventional lenders may decline your application. FHA's automated underwriting system can approve borrowers with DTIs up to 50% or higher with compensating factors. This flexibility is particularly relevant for young professionals carrying student loan debt who have stable incomes but high debt loads.

Buyers who want to purchase a multi-unit property as an owner-occupant find FHA financing attractive because of the low down payment on properties up to four units. A buyer purchasing a duplex with FHA needs only 3.5% down, while conventional loans for multi-unit properties often require 15% to 25% down. Living in one unit and renting the others can generate rental income that helps qualify for the mortgage and offsets the monthly payment, making this an excellent strategy for building wealth through real estate.

Conversely, borrowers who should probably not choose FHA include those with credit scores above 720 and 5% or more available for a down payment (conventional will likely be cheaper long-term), those buying in high-cost areas where FHA limits may be insufficient, those purchasing investment properties or second homes (FHA requires primary occupancy), and those who want to avoid lifetime mortgage insurance. In these cases, conventional, VA, or USDA loans are typically better alternatives.

How to Apply for an FHA Loan

Applying for an FHA loan follows a similar process to any mortgage application, with a few additional steps specific to the FHA program. Here is a step-by-step guide to navigate the process from initial inquiry through closing.

Step 1: Check your eligibility. Before approaching lenders, do a self-assessment. Check your credit score through a free service like AnnualCreditReport.com. Review your debt-to-income ratio by adding up all monthly debt payments and dividing by your gross monthly income. Estimate how much you have available for a down payment and closing costs. If your credit score is 580 or above, your DTI is below 50%, and you have at least 3.5% of your target purchase price available (from savings, gifts, or DPA programs), you are likely eligible for FHA financing.

Step 2: Get pre-approved with an FHA-approved lender. Contact two to three FHA-approved lenders and request pre-approval. Each lender will pull your credit, verify your income and assets, and issue a pre-approval letter stating the maximum FHA loan amount you qualify for. Having a pre-approval letter strengthens your position when making offers on homes, as sellers prefer buyers who have already been vetted by a lender. The pre-approval process typically takes one to three business days.

Step 3: Find a home and make an offer. Work with a real estate agent to find a home within your pre-approved price range that you believe will meet FHA minimum property standards. When you find the right home, submit an offer. Your offer should be contingent on financing and a satisfactory appraisal, which are standard contingencies in most purchase contracts.

Step 4: Complete the full application and provide documentation. Once your offer is accepted, submit a complete loan application (Uniform Residential Loan Application, or URLA/Form 1003) with your chosen lender. You will need to provide: tax returns for the past two years, W-2 forms for the past two years, pay stubs covering at least 30 days, bank statements for the past two to three months, identification (driver's license, Social Security card), and documentation for any gift funds or down payment assistance. Self-employed borrowers will also need business tax returns, a profit and loss statement, and possibly a CPA letter.

Step 5: FHA appraisal and underwriting. Your lender will order an FHA appraisal from an FHA-approved appraiser. This appraisal serves two purposes: it confirms the home's market value (to ensure the loan amount does not exceed the property's worth) and verifies that the property meets FHA minimum property standards. If the appraisal reveals issues, repairs may need to be completed before the loan can close. Simultaneously, your loan goes through underwriting, where an underwriter reviews all documentation, verifies your eligibility, and makes the final approval decision. Underwriting typically takes one to three weeks.

Step 6: Closing. After receiving final approval (known as "clear to close"), you will schedule a closing date, typically 30 to 45 days after your offer was accepted. At closing, you sign all loan documents, pay your down payment and closing costs (or verify that they have been wired), and receive the keys to your new home. The UFMIP (1.75% upfront mortgage insurance premium) is typically financed into the loan at this stage. Your first mortgage payment, including principal, interest, MIP, taxes, and insurance, will be due approximately 30 to 60 days after closing.

Common FHA Loan Myths Debunked

FHA loans are surrounded by misconceptions that can discourage eligible buyers from taking advantage of the program or lead to poor decisions. Let us address the most persistent myths with facts.

Myth: FHA loans are only for first-time homebuyers. This is false. While FHA loans are extremely popular among first-time buyers (about 83% of FHA purchase loans go to first-time buyers), there is no requirement that you be a first-time buyer. You can use an FHA loan even if you have owned homes before. The only restriction is that the property must be your primary residence and you must not currently have another FHA-insured mortgage (with limited exceptions for job relocations, growing families, or divorce situations).

Myth: FHA loans take much longer to close than conventional loans. While FHA loans do involve an additional property inspection component (the FHA appraisal with minimum property standards review), the overall timeline is comparable to conventional loans. Most FHA loans close in 30 to 45 days, the same range as conventional mortgages. Delays typically occur when the FHA appraisal identifies property issues requiring repairs before closing, but this is a safeguard that protects the buyer from purchasing a home with serious problems.

Myth: Sellers do not accept FHA offers. Some sellers and real estate agents have a bias against FHA offers, believing they involve more complications and a higher risk of falling through. While there is a kernel of truth (FHA appraisals can be slightly more stringent on property condition), outright rejection of FHA offers is less common than many believe. In a balanced or buyer-friendly market, sellers are generally willing to work with FHA buyers. In a highly competitive seller's market with multiple offers, cash and conventional offers may have an edge, but this is due to the overall competitive landscape, not a fundamental problem with FHA financing.

Myth: FHA loans have low loan limits that restrict you to cheap homes. FHA loan limits have increased substantially over the years. The 2026 floor of $524,225 covers homes at or above the median price in most U.S. counties. In high-cost areas, limits reach $1,209,750, which is sufficient for upper-middle-tier homes in even expensive markets like San Francisco and New York. The FHA is not limited to starter homes or modest properties; it covers a wide range of price points across the country.

Myth: You can never get rid of FHA mortgage insurance. While it is true that FHA MIP lasts the life of the loan for borrowers who put less than 10% down, you are not locked in forever. Once you build 20% or more equity in your home (through payments, appreciation, or both), you can refinance into a conventional loan that does not require mortgage insurance. Many FHA borrowers follow this strategy: they use FHA to buy the home with a low down payment, build equity over several years, and then refinance to a conventional loan to eliminate MIP and potentially secure a lower interest rate. It requires a separate loan transaction with closing costs, but the long-term savings typically justify the expense.

Myth: FHA interest rates are higher than conventional rates. In fact, FHA interest rates are typically lower than conventional rates for borrowers in the same credit score range, because the government insurance reduces the lender's risk. The overall cost of an FHA loan may be higher when you factor in MIP, but the base interest rate itself is usually competitive or better than conventional, especially for borrowers with credit scores below 720.