What Is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). Created in 1934, the FHA program was designed to increase homeownership among Americans who might not qualify for conventional financing. Unlike conventional loans, FHA loans allow borrowers with lower credit scores (as low as 580 for the 3.5% down payment option) and higher debt-to-income ratios to secure a mortgage. The FHA does not lend money directly; instead, it insures loans made by FHA-approved lenders, reducing the risk for those lenders and enabling more favorable terms for borrowers. As of 2025, FHA loans account for roughly 15% of all new mortgage originations in the United States, making them one of the most popular paths to homeownership for first-time buyers.
FHA Mortgage Insurance Premiums (MIP) Explained
Every FHA loan requires two types of mortgage insurance premiums. The Upfront Mortgage Insurance Premium (UFMIP) is a one-time charge of 1.75% of the base loan amount, which is typically financed into the loan rather than paid out of pocket at closing. For example, on a $337,750 loan (a $350,000 home with 3.5% down), the UFMIP would be approximately $5,911. The Annual Mortgage Insurance Premium (MIP) is an ongoing charge paid monthly, currently set at 0.55% per year for most 30-year FHA loans with more than 95% loan-to-value ratio. On that same loan, annual MIP adds roughly $155 per month to your payment. Unlike conventional PMI, which can be removed at 80% LTV, FHA MIP on loans with less than 10% down remains for the entire life of the loan. Borrowers who put 10% or more down will see MIP removed after 11 years.
FHA Loan Limits by County
FHA loan limits vary by county and are updated annually based on changes in home prices. For 2025, the standard FHA loan limit (known as the "floor") for single-family homes in most counties is $498,257, while the ceiling in high-cost areas such as Los Angeles County, San Francisco, and parts of New York and New Jersey reaches $1,149,825. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have even higher limits. These figures are recalculated each year using data from the Federal Housing Finance Agency (FHFA). Before applying, it is important to check the specific limit for your county through the HUD FHA Mortgage Limits lookup tool, as purchasing a home that exceeds your county's FHA limit will require conventional or jumbo financing instead.
FHA vs Conventional Loan Comparison
Choosing between an FHA and a conventional loan depends on your credit profile, down payment savings, and long-term plans. FHA loans accept credit scores as low as 580 with 3.5% down, while most conventional loans require a minimum of 620 and perform best at 740 or higher. Conventional loans with less than 20% down require private mortgage insurance (PMI), but PMI is automatically canceled once you reach 78% LTV, whereas FHA MIP lasts the life of the loan for most borrowers. Interest rates on FHA loans are often slightly lower than conventional rates for borrowers with credit scores below 720, but the mandatory MIP can offset that savings over time. Conventional loans also have no upfront insurance premium, reducing closing costs. For borrowers who plan to stay in a home long term and have moderate credit, FHA may be cheaper in the early years; for those with strong credit who can reach 20% equity quickly, conventional is usually the more cost-effective option.
FHA Qualification Requirements
To qualify for an FHA loan, borrowers must meet several criteria established by HUD. The minimum credit score is 500, though borrowers scoring between 500 and 579 must put at least 10% down. A score of 580 or above qualifies for the standard 3.5% minimum down payment. Your total debt-to-income ratio (DTI) should generally not exceed 43%, although some FHA-approved lenders will accept ratios up to 50% with compensating factors such as cash reserves or a strong employment history. The property must serve as your primary residence, and it must meet FHA minimum property standards as determined by an FHA appraisal. You must also demonstrate steady employment income for at least two years. FHA loans are available for single-family homes, duplexes, triplexes, and four-unit properties, as well as certain HUD-approved condominiums. There is no income ceiling for FHA borrowers, making the program accessible across a wide economic range.