Overview
FHA loans allow first-time and low-down-payment buyers to qualify for home purchases that might not be accessible through conventional financing. The tradeoff is mortgage insurance premium (MIP) -- a cost that adds to monthly payments but is often worth paying to enter the market sooner.
FHA vs conventional loan comparison
| Feature | Conventional Loan | FHA Loan |
|---|---|---|
| Minimum down payment | 3-5% | 3.5% (with 580+ credit) |
| Credit score minimum | 620-640 typically | 580 for 3.5% down; 500 for 10% down |
| DTI limit | 43% (up to 50% with factors) | 50% (sometimes 57% with strong factors) |
| PMI/MIP | PMI -- cancellable at 20% equity | MIP -- 1.75% upfront + 0.55-0.75% annual (life of loan if <10% down) |
| Loan limit (2025) | Up to $766,550 (conforming) | Up to $498,257 most areas (varies) |
| Property condition | Standard | Stricter FHA appraisal requirements |
For FHA loans with less than 10% down payment, mortgage insurance premium (MIP) cannot be canceled -- you pay it for the life of the loan. This is different from conventional PMI which cancels at 20% equity. The ongoing MIP cost often motivates borrowers to refinance from FHA to conventional once they reach 20% equity.
Key Points
- FHA loans are not just for low-income borrowers -- any income level can use them
- 3.5% down on a $350,000 home = $12,250 down payment -- much more accessible than 20%
- FHA annual MIP: 0.55-0.75% of loan balance adds $150-$220/month on a $300K loan
- FHA upfront MIP: 1.75% of loan amount (often rolled into the loan)
- The broader DTI limits of FHA often allow buyers to qualify at income levels where conventional is unavailable
Calculate Your Home Affordability
Use the home affordability calculator to see your maximum home price based on your income, debts, down payment, and current mortgage rates.
Calculate How Much Home You Can Afford
Enter your income, debts, and down payment to see your maximum affordable home price.