FHA Loan
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration that allows qualified borrowers to purchase homes with down payments as low as 3.5% and requires mortgage insurance premiums (MIP) for the life of the loan in most cases.
Exam Tip
FHA = 3.5% down (580+ credit), MIP required for LIFE unless 10%+ down. FHA INSURES loans (does not make them). Primary residence only. Upfront MIP = 1.75%, annual MIP = ~0.55%.
What is an FHA Loan?
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). FHA does not lend money directly - it insures loans made by approved private lenders, reducing their risk and enabling them to offer more favorable terms to borrowers.
FHA Loan Requirements
| Requirement | Details |
|---|---|
| Minimum Credit Score | 580 for 3.5% down; 500-579 for 10% down |
| Down Payment | 3.5% minimum (with 580+ credit score) |
| Debt-to-Income Ratio | Generally up to 43% (may go higher with compensating factors) |
| Property Type | Must be primary residence |
| Property Standards | Must meet FHA minimum property requirements |
| Employment | Steady employment and income verification required |
FHA Mortgage Insurance Premium (MIP)
| Type | Amount | When Paid |
|---|---|---|
| Upfront MIP (UFMIP) | 1.75% of loan amount | At closing (can be financed) |
| Annual MIP | 0.15% to 0.75% (most pay 0.55%) | Monthly, added to payment |
MIP Duration
| Down Payment | How Long MIP is Required |
|---|---|
| Less than 10% | Life of the loan |
| 10% or more | 11 years |
FHA vs. Conventional vs. VA Loans
| Feature | FHA | Conventional | VA |
|---|---|---|---|
| Down Payment | 3.5% minimum | 3-20% | 0% |
| Credit Score | 500-580 minimum | 620+ typically | No minimum (lender varies) |
| Mortgage Insurance | Required (MIP) | Required if <20% down (PMI) | No MI (funding fee instead) |
| MI Cancellation | No (except 10%+ down) | Yes, at 80% LTV | N/A |
| Eligibility | Any qualified buyer | Any qualified buyer | Veterans/military only |
| Loan Limits | County-based limits | Conforming limits | No limit |
FHA Loan Limits (2025)
| Area Type | Single-Family Limit |
|---|---|
| Low-Cost Areas | $524,225 |
| High-Cost Areas | Up to $1,209,750 |
Advantages of FHA Loans
| Advantage | Benefit |
|---|---|
| Lower down payment | Only 3.5% needed |
| Lower credit requirements | Scores as low as 500 accepted |
| Assumable | Buyer can take over seller's FHA loan |
| Gift funds allowed | 100% of down payment can be gift |
| Seller concessions | Up to 6% of purchase price |
Disadvantages of FHA Loans
| Disadvantage | Impact |
|---|---|
| MIP for life | Cannot cancel if down payment < 10% |
| Property requirements | Must meet FHA standards |
| Loan limits | May not cover expensive homes |
| Primary residence only | Cannot use for investment properties |
Exam Alert
FHA loan key facts: 3.5% minimum down payment with 580+ credit score (10% down if 500-579). Requires BOTH upfront MIP (1.75%) AND annual MIP. MIP is for LIFE of loan unless 10%+ down payment. FHA INSURES loans - does not make them. Property must be PRIMARY RESIDENCE.
Study This Term In
Related Terms
Mortgage
Real EstateA mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.
Conventional Loan
Real EstateA conventional loan is a mortgage not insured or guaranteed by a government agency (unlike FHA, VA, or USDA loans), typically requiring a 20% down payment to avoid private mortgage insurance (PMI).
VA Loan
Real EstateA VA loan is a government-backed mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses, featuring 0% down payment, no private mortgage insurance (PMI), and competitive interest rates.