What is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. FHA loans are popular with first-time buyers because they require only 3.5% down (with a 580+ credit score) and are more flexible on credit history than conventional loans.
FHA Mortgage Insurance Premium (MIP)
Unlike conventional PMI (which can be cancelled at 20% equity), FHA MIP has two components and different rules:
- Upfront MIP: 1.75% of base loan amount, typically rolled into the loan
- Annual MIP: Currently 0.55%/year for most 30-year FHA loans (2026), paid monthly
- Duration: MIP is permanent if down payment < 10%. Drops after 11 years if ≥ 10% down
When Does FHA Make Sense?
FHA beats conventional when: your credit score is 580–680, you have less than 5–10% down, or you have high debt-to-income ratio. Conventional beats FHA when: you have 20%+ down (no insurance needed), credit 740+, or when you want to avoid lifetime MIP on small down payments.
Frequently Asked Questions
An FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans require a minimum 3.5% down payment (with credit score 580+) or 10% down (with scores 500–579). They are popular with first-time buyers and those with imperfect credit because they offer more flexible qualification standards.
Mortgage Insurance Premium (MIP) is the FHA equivalent of PMI. It has two parts: 1) Upfront MIP: 1.75% of the loan amount, paid at closing (or rolled into the loan). 2) Annual MIP: Currently 0.55% for most 30-year FHA loans in 2026, paid monthly as part of your payment.
For loans with 10% or more down payment: MIP cancels after 11 years. For loans with less than 10% down: MIP remains for the life of the loan. This is a key disadvantage of FHA loans — conventional loans allow PMI cancellation at 20% equity. To eliminate MIP on a <10% down FHA loan, you must refinance to a conventional loan.
FHA loan limits vary by county. For 2026, the national floor is $524,225 for a single-family home, and the ceiling (high-cost areas) is $1,209,750. Special limits apply in Alaska, Hawaii, Guam, and the US Virgin Islands. Check HUD.gov for your county's specific limit.
Minimum credit scores: 580+ for 3.5% down, 500–579 for 10% down. However, most FHA lenders set their own overlays (minimum scores of 620 or 640 are common). A higher score also gets you a better interest rate.
FHA: Lower down payment (3.5% vs 5%), more flexible credit, but MIP for life (if <10% down) and loan limits. Conventional: Can eliminate PMI at 20% equity, no loan limits for jumbo, stricter credit requirements. FHA often makes sense for borrowers with credit scores 580–700 or limited down payments.
Yes — once you reach 20% equity (through payments or appreciation), you can refinance to a conventional loan and eliminate MIP entirely. This is the most common way to escape lifetime MIP on FHA loans with less than 10% down. Use our refinance calculator to check if refinancing makes sense.
The upfront MIP is 1.75% of the base loan amount. On a $300,000 loan, that is $5,250. You can pay it in cash at closing, or more commonly, have it rolled into the loan balance (increasing your loan to $305,250). Rolling it in means you pay interest on the MIP over the life of the loan.