# FHA loans explained

> How FHA loans work in 2026: 3.5% down with a 580 score, upfront and annual mortgage insurance, county loan limits and how FHA compares with conventional.

URL: https://mortgage-math-us.com/loan-types/fha-loans/  
Last reviewed: 2026-10-28 · By the MortgageMath US Editorial team

## Quick answer

An FHA loan is a mortgage insured by the Federal Housing Administration. You can put down 3.5% with a credit score of 580 or higher, or 10% with a score from 500 to 579. In return you pay an upfront premium of 1.75% of the loan plus annual mortgage insurance — 0.55% a year on a typical 30-year loan with the minimum down payment, for the life of the loan.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| Minimum down payment (580+ score) | 3.5% | [CFPB](https://www.consumerfinance.gov/owning-a-home/prepare/figure-out-how-much-you-want-to-spend/) | Oct 28, 2026 |
| Lowest score FHA accepts (10% down) | 500 | [HUD Mortgagee Letter 2026-11](https://www.hud.gov/sites/default/files/hudclips/documents/2026-11hsgml.pdf) | Oct 8, 2026 |
| Upfront mortgage insurance premium | 1.75% | [HUD Mortgagee Letter 2023-05](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf) | Feb 22, 2023 |
| Annual MIP, 30-year loan, under 5% down | 0.55% | [HUD Mortgagee Letter 2023-05](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf) | Feb 22, 2023 |
| 2026 FHA limit, lower-cost counties | $541,287 | [HUD](https://www.hud.gov/news/hud-no-25-145) | 2026 limit |
| 2026 FHA limit, high-cost counties | $1,249,125 | [HUD](https://www.hud.gov/news/hud-no-25-145) | 2026 limit |

## How an FHA loan works

The Federal Housing Administration, part of the Department of Housing and Urban Development (HUD), doesn’t lend money. It insures loans that approved lenders make, which lets those lenders accept smaller down payments and lower credit scores than they would on a conventional loan. Borrowers pay for that insurance through the mortgage insurance premium (MIP).

FHA loans finance a home you will live in as your principal residence — not a vacation home or a rental. They can cover one- to four-unit properties, so you can buy a duplex and live in one unit. The home must meet HUD’s property standards, which the FHA appraiser checks along with the value.

## FHA requirements at a glance

| Requirement | FHA rule |
|---|---|
| Down payment | 3.5% with a 580+ score; 10% with 500–579 |
| Credit score | At least 500; lenders may set higher minimums |
| Debt-to-income | 31% housing and 43% total for manually underwritten loans without compensating factors; automated approvals can go higher |
| Upfront MIP | 1.75% of the base loan, usually added to the loan |
| Annual MIP | 0.5%–0.55% on most 30-year loans, paid monthly |
| Loan limit (one unit, 2026) | $541,287 in lower-cost counties up to $1,249,125 in the most expensive |
| Occupancy | Must be your principal residence |

Lenders can add stricter rules of their own, known as overlays — especially on credit scores. If one lender turns you down, another may not.

## FHA mortgage insurance: the real cost

Mortgage insurance is what makes FHA different from a conventional loan, and it comes in two parts.

**Upfront MIP** is 1.75% of the base loan. Most borrowers add it to the loan instead of paying cash. If you refinance into another FHA loan within 3 years, part of it is refunded as a credit.

**Annual MIP** is charged as a percentage of the loan each year and split into your monthly payments. For loans longer than 15 years with a base amount up to $726,200, HUD’s rates are:

*FHA annual MIP, terms over 15 years (HUD Mortgagee Letter 2023-05)*

| Down payment | Annual MIP | How long it lasts |
|---|---:|---|
| Under 5% | 0.55% | Life of the loan |
| 5% to under 10% | 0.5% | Life of the loan |
| 10% or more | 0.5% | 11 years |

Larger loans above $726,200 pay 0.7% with 5% or more down. The rule that matters most is the last column: when the starting loan-to-value is above 90%, MIP never cancels on its own. Unlike PMI on a conventional loan, it doesn’t end when you reach 20% equity — the usual way out is to [refinance into a conventional loan](https://mortgage-math-us.com/refinancing/refinance-to-remove-pmi/) once you have enough equity.

## What an FHA payment looks like

> **Worked example: $360,000 home (near the US median value), 3.5% down, 30-year fixed at an example rate of 7.24%**
>
> | Part of the payment | Monthly |
> |---|---:|
> | Principal and interest on $353,480 (upfront MIP financed) | $2,409 |
> | Annual MIP at 0.55% | $159 |
> | Property tax at 0.89% a year | $267 |
> | Homeowners insurance | $147 |
> | **Total** | **$2,982** |
> 
> The rate is Freddie Mac’s weekly average for conventional loans, used only to keep the comparison like for like; FHA quotes can be lower or higher. Tax and insurance use national averages.

Cash needed at closing is the $12,600 down payment plus closing costs — typically 2%–5% of the price, according to the CFPB. FHA lets family members, employers and approved assistance programs give you money toward both, as long as the gift is documented.

## FHA vs conventional

Conventional loans backed by Fannie Mae and Freddie Mac can start at 3% down, so FHA’s advantage isn’t the down payment alone. It is how much credit history matters:

*Same $360,000 home, smallest down payment on each loan*

| | FHA | Conventional |
|---|---:|---:|
| Down payment | $12,600 (3.5%) | $10,800 (3%) |
| Upfront insurance | $6,080 (financed) | None |
| Monthly mortgage insurance | $159 | $175 (PMI midpoint) |
| Insurance ends | Life of the loan | At 78% of original value |
| Total monthly payment | $2,982 | $2,968 |

PMI on a conventional loan is priced on your credit score, so the gap moves with your credit: borrowers with strong scores usually pay less for PMI than for FHA’s MIP, while borrowers with lower scores or higher debts may find FHA cheaper or easier to qualify for. Because FHA insurance usually lasts for the life of the loan, compare the total cost over the years you expect to keep the mortgage, not just the first payment. Ask for a Loan Estimate on both.

## Who FHA suits best

- **Buyers with credit scores in the 500s or low 600s**, or a thin credit file.
- **Buyers with higher debts**, since FHA’s automated approvals can allow a higher debt-to-income ratio than many conventional loans.
- **Buyers relying on gifts or assistance** for the down payment and closing costs.
- **Buyers of two- to four-unit homes** who plan to live in one unit and rent the others.

FHA is usually a poor fit if you have a strong credit score and can put down 10% or more, if you need a jumbo-sized loan above your county’s FHA limit, or if the home needs major repairs to meet HUD’s standards (FHA’s 203(k) program covers renovation loans).

## Refinancing an FHA loan

Two FHA options exist. An **FHA Streamline Refinance** lowers the rate with limited paperwork and no new appraisal in many cases; you must have made at least 6 payments and waited 210 days since closing, and you can take out no more than $500. An **FHA cash-out refinance** goes up to 80% of the home’s value. Once you have 20% equity, many owners refinance into a conventional loan to drop MIP — see [streamline refinances](https://mortgage-math-us.com/refinancing/streamline-refinance/).

> **Tip: Check the limit for your county**
>
> FHA limits are set county by county each year. HUD’s FHA Mortgage Limits search shows the figure for your county; in most of the country it is the $541,287 floor.

## Frequently asked questions

### What credit score do you need for an FHA loan?

At least 580 for the minimum 3.5% down payment, or 500 to 579 with 10% down. Individual lenders can require higher scores.

### How much is FHA mortgage insurance?

An upfront premium of 1.75% of the loan, usually financed, plus annual MIP of 0.5% to 0.55% on most 30-year loans, paid monthly. On the median-value example above, annual MIP adds about $159 a month.

### Can you remove MIP from an FHA loan?

Only if you started with 10% or more down, in which case it ends after 11 years. With less down, MIP lasts for the life of the loan, and the usual way to drop it is to refinance into a conventional loan once you have enough equity.

### What is the FHA loan limit for 2026?

For a one-unit home it ranges from $541,287 in lower-cost counties to $1,249,125 in the highest-cost areas. HUD publishes the limit for each county.

### Can I use an FHA loan for an investment property?

Not for a property you won’t live in. You can buy a two- to four-unit home with an FHA loan if you live in one of the units as your principal residence.

### Is FHA better than conventional for first-time buyers?

It depends on your credit and down payment. FHA is often easier to qualify for with a lower score or higher debts; with good credit, conventional loans usually cost less because PMI is cheaper and can be cancelled.

## Sources

- [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- [US Census Bureau, American Community Survey 2024 1-year](https://data.census.gov/table/ACSDT1Y2024.B25077?g=010XX00US) — Median value of owner-occupied homes (2024 ACS 1-year)
- [US Census Bureau, American Community Survey 2024 1-year](https://data.census.gov/table/ACSDT1Y2024.B25103?g=010XX00US) — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- [Freddie Mac Research](https://www.freddiemac.com/research/insight/homeowners-insurance-costs) — Average homeowners insurance premium per $1,000 of home value (2023 data)
- [CFPB](https://www.consumerfinance.gov/owning-a-home/prepare/figure-out-how-much-you-want-to-spend/) — Minimum FHA down payment; Minimum down payment on some conventional loans; Typical closing costs, low end (share of purchase price) (Oct 28, 2026)
- [HUD Mortgagee Letter 2023-05](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf) — FHA upfront mortgage insurance premium; FHA annual MIP, 30-year loan, more than 95% LTV; FHA annual MIP, 30-year loan, 95% LTV or less (Feb 22, 2023)
- [Freddie Mac My Home](https://myhome.freddiemac.com/buying/breaking-down-pmi) — Typical PMI cost, low end; Typical PMI cost, high end (Oct 28, 2026)
- [HUD Mortgagee Letter 2026-11](https://www.hud.gov/sites/default/files/hudclips/documents/2026-11hsgml.pdf) — FHA minimum score for maximum financing; FHA minimum decision credit score (90% LTV cap from 500 to 579); FHA manual underwriting housing ratio (no compensating factors) (Oct 8, 2026)
- [HUD](https://www.hud.gov/news/hud-no-25-145) — 2026 FHA loan limit floor (one-unit, low-cost areas); 2026 FHA loan limit ceiling (one-unit, high-cost areas) (2026 limit)
- [HUD FHA fact sheet](https://www.hud.gov/hud-partners/housing-fha-fact-sheet) — FHA upfront premium is partly refunded on an FHA-to-FHA refinance within (Oct 28, 2026)
- [CFPB](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/) — PMI ends automatically at this share of original value (Oct 28, 2026)
- [FDIC Affordable Mortgage Lending Guide (summary of HUD Handbook 4000.1)](https://www.fdic.gov/system/files/2024-07/streamline-refinance.pdf) — FHA Streamline: monthly payments already made; FHA Streamline: days that must pass since the current loan closed (Oct 28, 2026)
- [HUD: Streamline Refinance](https://hud.gov/hud-partners/single-family-streamline) — FHA Streamline: most cash a borrower can take out (Oct 28, 2026)
- [HUD Mortgagee Letter 2019-11](https://www.hud.gov/sites/dfiles/OCHCO/documents/19-11ml.pdf) — FHA cash-out refinance maximum loan-to-value (Aug 1, 2019)
- [HUD Mortgagee Letter 2023-05: Reduction of FHA annual MIP](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf)
- [HUD: FHA Mortgage Limits search](https://entp.hud.gov/idapp/html/hicostlook.cfm)
- [CFPB: FHA loans](https://www.consumerfinance.gov/owning-a-home/fha-loans/)

_General information, not financial advice._