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You have $14,000 saved, a credit score in the mid 600s and your eye on a $340,000 townhouse. One lender quotes you a conventional loan. Another says you would "do better with FHA." The rates look close. The monthly payments do not, and neither do the long-term costs.
So what is an FHA loan? It is a mortgage made by a private, FHA-approved lender and insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). If you default, FHA's insurance covers the lender's loss. Because the lender carries less risk, it can accept a smaller down payment and a lower credit score than many conventional loans allow. The minimum down payment is 3.5 percent of the home's value for borrowers with a credit score of 580 or higher.
The trade is mortgage insurance. You pay an upfront premium at closing and an annual premium every month, and on most low down payment loans that annual premium lasts as long as the loan does. Whether FHA is the cheaper path depends on how long you keep the loan, how much you put down and what a conventional lender would charge you instead.
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FHA does not lend money to buyers. It sets the rules, approves the lenders and insures the loans those lenders make. Your application, rate and closing all go through a bank, credit union or mortgage company that participates in the program.
The rules live in HUD's Single Family Housing Policy Handbook 4000.1, a document of more than 1,800 pages that covers the borrower, the property and the lender. Three features define the program for a buyer:
The handbook sets the credit floor through a figure called the Minimum Decision Credit Score, usually the middle of your three bureau scores. With a score of 580 or higher, you are eligible for maximum financing, which on a purchase means a loan of up to 96.5 percent of the home's value, so 3.5 percent down, the handbook's Minimum Required Investment. With a score from 500 to 579, the loan is capped at 90 percent of value, so you need 10 percent down. Below 500, you are not eligible for FHA financing at all.
Lenders also look at your debt-to-income ratio, your employment and income history, any recent bankruptcy or foreclosure, and where your down payment comes from. Gifts from family members, employers and some public programs are allowed if they are documented. Lenders can and often do add their own stricter requirements, called overlays, on top of HUD's minimums.
That is the summary. Our step-by-step guide on how to qualify for an FHA mortgage goes through each requirement, the waiting periods and the debt ratio limits in detail. If you are buying in a community with association dues, read how HOA fees affect your mortgage approval before you set a price ceiling, because the lender counts the dues in your monthly housing payment.
Every FHA loan carries two premiums, set by HUD rather than by your lender.
Upfront mortgage insurance premium (UFMIP). For most loans it is 1.75 percent of the base loan amount. Most borrowers add it to the loan balance rather than paying it in cash at closing.
Annual mortgage insurance premium (MIP). It is quoted as a yearly percentage and collected in your monthly payment. In 2023, HUD cut the annual premium from 0.85 percent to 0.55 percent for most new borrowers, a change the White House estimated would save an average of $800 a year. The reduced rates in Mortgagee Letter 2023-05 apply to loans endorsed on or after March 20, 2023, and they still appear in the handbook's premium appendix.
| Loan term over 15 years, base loan up to $726,200 | Annual MIP | How long you pay it |
|---|---|---|
| Down payment of 10 percent or more (LTV 90 percent or less) | 0.50 percent | 11 years |
| Down payment of 5 to 10 percent (LTV above 90 and up to 95 percent) | 0.50 percent | Life of the loan |
| Down payment under 5 percent (LTV above 95 percent) | 0.55 percent | Life of the loan |
Larger loans and 15-year terms have their own rows in the same table. The pattern to remember: put down less than 10 percent and the annual premium stays until you sell, refinance or pay off the loan.
Take an illustrative purchase. Say the home costs $350,000 and you put down the 3.5 percent minimum, $12,250. The base loan is $337,750. The 1.75 percent upfront premium adds $5,911, so you owe about $343,661. At 0.55 percent, the annual premium in the first year is roughly $1,858, or about $155 a month, and it declines slowly as the balance falls. Over a decade, that premium adds up to more than $15,000 on this example at typical interest rates.
How you pay closing costs changes the math too. Financing the upfront premium is one of the few ways to fold a cost into a purchase loan; our guide on whether you can roll closing costs into a mortgage covers seller credits and the other options.
Only on the 11-year schedule, or by leaving the loan. Conventional loans work differently. Under federal rules that the CFPB summarizes in its guide to removing PMI, you can ask to cancel private mortgage insurance when your balance is scheduled to reach 80 percent of the home's original value, and the servicer generally must end it automatically at 78 percent if you are current. The CFPB notes that FHA loans follow different rules. Many FHA borrowers plan to refinance into a conventional loan once they have enough equity, which only works if rates and their credit cooperate at the time.
FHA caps how much it will insure, and the cap depends on the county. For case numbers assigned on or after January 1, 2026, HUD set the one-unit limit at a floor of $541,287 in lower-cost areas and a ceiling of $1,249,125 in the highest-cost areas, according to HUD's 2026 loan limit announcement. Two- to four-unit properties have higher limits.
Because the floor applies nationwide, a modest purchase fits under the limit wherever you buy. A first-time buyer looking at a $340,000 townhouse near Orlando, a condo in Charlotte or a starter home in Houston is well inside the 2026 floor. A $700,000 purchase is a different question: it depends on whether the county's limit sits above the floor. Check your county in HUD's FHA Mortgage Limits lookup before you write an offer that assumes FHA financing.
An FHA appraisal does two jobs. It estimates value, and it checks the home against HUD's Minimum Property Requirements, which the handbook describes as the general requirement that every FHA-insured home be safe, sound and secure. When the appraiser finds a problem, such as a broken handrail, exposed wiring or peeling paint on an older home, the report lists the repair and an estimated cost. Those repairs usually have to be completed, or handled through an approved escrow, before the loan closes.
This is where sellers sometimes push back on FHA offers, especially on homes that need work. In a competitive market, a repair list can make your offer look less certain than a conventional buyer's, so ask your agent how FHA offers have fared locally.
Your lender will also require hazard insurance on the home, as any mortgage lender does. If the term is new to you, our guide to what hazard insurance is explains what lenders mean by it.
A condo unit can be financed with FHA only if the building is on FHA's approved list, meets HUD's definition of a site condominium, or the specific unit passes single-unit approval. Many buildings have never applied, and approvals expire. Our guide to FHA qualified condos explains how to check a building and what to do if it is not approved, and the guide to the non-warrantable condo covers the separate conventional loan rules. If you are new to the ownership structure itself, start with what a condo actually is.
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Who backs it | Insured by FHA, part of HUD | No government insurance; most are sold to Fannie Mae or Freddie Mac |
| Minimum down payment | 3.5 percent with a 580 score; 10 percent from 500 to 579 | As low as 3 percent on some programs, such as Fannie Mae's HomeReady for income-eligible buyers |
| Credit flexibility | HUD floor of 500, with lender overlays common | Investor and lender rules apply; lower scores usually mean higher pricing |
| Mortgage insurance | 1.75 percent upfront plus annual MIP, set by HUD | Private mortgage insurance when you put down less than 20 percent, priced by the insurer |
| Ending mortgage insurance | After 11 years with 10 percent or more down; otherwise refinance or payoff | Cancel on request at 80 percent of original value; ends automatically at 78 percent if current |
| 2026 loan limit, one unit | $541,287 to $1,249,125, by county | $832,750 in most of the country, up to $1,249,125 in high-cost areas |
| Occupancy | Principal residence | Principal residence, second home or investment property |
| Seller help with costs | Interested parties can contribute up to 6 percent of the price | Limits vary by down payment and occupancy |
| Condos | FHA project approval, site condo or single-unit approval | Project review under Fannie Mae or Freddie Mac rules |
| Assumable by a later buyer | Yes, with servicer approval | Generally no, because of due-on-sale clauses |
The conventional limits come from FHFA's 2026 conforming loan limit announcement. Fannie Mae's HomeReady rules allow loan-to-value ratios up to 97 percent, so 3 percent down, for borrowers whose qualifying income is no more than 80 percent of the area median.
FHA tends to fit when your credit score is below the range where conventional pricing improves, when you have less than 10 percent to put down, or when your debt ratios are tighter than a conventional lender wants. It also helps when a seller is willing to pay a large share of your closing costs.
Conventional usually pulls ahead as your score rises and your down payment grows, because private mortgage insurance can be cancelled and may cost less for a strong borrower. The honest way to decide is to ask two lenders for Loan Estimates on the same day, one FHA and one conventional, and compare the total monthly payment plus the premiums you would pay over the years you expect to keep the loan. A loan officer can run both scenarios, and a HUD-approved housing counseling agency can walk through them with you.
Also weigh the property type. Financing rules are one reason the condo vs house decision plays out differently for FHA buyers, since a house avoids project approval entirely. When you are ready to shortlist, browse listings on Leevli and filter for the price range your county's FHA limit allows.
FHA rules are public, but how a building, an association and local sellers treat FHA buyers is something only people who live there can tell you.
Listings show the property, but they rarely explain the lived reality around it. On Leevli, a mover can explore the city, review neighborhood and building information, and ask a verified resident the specific questions that remain unanswered. That human layer helps readers know what to investigate before signing a lease, making an offer, or choosing between two addresses.
It is a home loan made by a regular lender and insured by the Federal Housing Administration, a part of HUD. The insurance repays the lender if the borrower defaults, so the lender can accept a smaller down payment and lower credit scores. In exchange, the borrower pays mortgage insurance premiums, both upfront and every month, and the home must meet HUD's property standards.
Borrowers who will live in the home as their principal residence and meet HUD's credit, income and debt standards. A credit score of 580 or higher allows 3.5 percent down, and scores from 500 to 579 require 10 percent down. Lawful permanent residents can qualify on the same terms as citizens. Individual lenders may set higher minimums, so compare more than one before you give up.
The minimum is 3.5 percent of the home's adjusted value if your credit score is 580 or higher, and 10 percent if it falls between 500 and 579. On a $300,000 home, that is $10,500 or $30,000. The money can come from savings or from documented gifts by family members, an employer or qualifying public and nonprofit programs, but not from the seller.
Most borrowers pay an upfront premium of 1.75 percent of the base loan amount, usually added to the loan, plus an annual premium collected monthly. For a loan of $726,200 or less with a term over 15 years, the annual rate is 0.50 percent with at least 5 percent down and 0.55 percent with less. On a $337,750 loan, 0.55 percent is about $155 a month at first.
It depends on your starting loan-to-value ratio. If you put down at least 10 percent, the annual premium ends after 11 years. If you put down less, it lasts for the life of the loan, which in practice means until you sell, refinance or pay it off. Many owners refinance into a conventional loan once they have enough equity to avoid private mortgage insurance.
Neither is better in general. FHA often wins for buyers with credit scores in the 500s or low 600s, small down payments or higher debt ratios. Conventional usually wins for buyers with strong credit and 10 percent or more down, because private mortgage insurance can be cancelled. Request same-day Loan Estimates for both and compare total costs over the years you plan to own.
For one-unit homes, HUD set the 2026 limits at $541,287 in lower-cost counties and up to $1,249,125 in the highest-cost counties, for case numbers assigned on or after January 1, 2026. Limits are set county by county, so two towns in the same state can differ, and they are higher for two- to four-unit properties. HUD's online FHA Mortgage Limits lookup shows the figure for any county.
Yes, if the unit qualifies. The building must be on FHA's list of approved condominium projects, meet HUD's site condominium definition, or the individual unit must pass single-unit approval through your lender. Many buildings are not approved or have let approval expire, so check the status before you make an offer that depends on FHA financing.
No. FHA has no first-time buyer requirement, and repeat buyers use it too. The main occupancy rule is that the home must be your principal residence, and FHA generally will not insure more than one principal residence for the same borrower at a time. That is why most people who already own a home sell it or refinance before buying with FHA.
Comparing interest rates alone. An FHA rate can look lower than a conventional quote while the total payment is higher once the annual premium is added, and that premium may last the life of the loan. Another frequent mistake is falling for a condo before confirming its FHA status. Compare full monthly payments and long-term premium costs, and check the building first.
Editorial review: verify current federal and state law, insurance regulations, HOA and condominium statutes, and lender guidelines before relying on any single claim. This article is informational and does not constitute legal, financial, tax or insurance advice.
