FHA loans are mortgages insured by the Federal Housing Administration. Because the government insures the lender against loss, FHA-approved lenders can offer more lenient credit requirements and lower down payments than most conventional loans.
FHA loans are especially popular with first-time buyers and borrowers who've had past credit events like a bankruptcy or foreclosure. Down-payment gifts from family are allowed to cover the entire down payment, which isn't common across other loan programs.
How it works
FHA sets minimum standards that approved lenders must follow: borrowers with a lower credit score can still qualify with a modest down payment, and the program's flexible debt-to-income guidelines can accommodate borrowers who might not fit a conventional box.
In exchange for that flexibility, FHA charges mortgage insurance in two parts — an upfront premium financed into the loan at closing, and an annual premium paid monthly. Those premiums fund the program and protect the lender if the loan defaults.
Because FHA mortgage insurance usually lasts for the life of the loan when the down payment is under 10%, many FHA borrowers plan from day one to refinance into a conventional loan once they've built roughly 20% equity, eliminating the ongoing insurance cost.
When it matters to you
FHA matters most when credit history or down payment savings are the limiting factor on qualifying — it's often the most accessible path to a first home.
It matters again a few years into homeownership, when refinancing out of FHA into conventional financing can meaningfully lower the monthly payment by eliminating MIP.
Common mistakes
- Staying on an FHA loan indefinitely without revisiting a refinance once equity has built up, leaving ongoing mortgage insurance on the table unnecessarily.
- Assuming FHA is always cheaper than conventional — for borrowers with strong credit, conventional can end up less expensive overall once mortgage insurance is factored in.
- Not asking about the FHA loan limit for the specific county, which varies and caps how large an FHA loan can be in that area.
- Overlooking that FHA has property condition requirements — a home in poor condition may need repairs completed before FHA financing can close.
FAQs
What credit score do I need for an FHA loan?
FHA guidelines allow flexibility well below what most conventional programs accept, with the lowest down payment tier typically requiring a higher minimum score than the absolute floor FHA permits. Ask a loan officer for the exact thresholds on your file.
Can family help with my FHA down payment?
Yes. FHA allows gift funds from family members to cover the entire down payment, which is one of the program's most borrower-friendly features compared to many conventional options.
Does FHA mortgage insurance ever go away?
If your down payment was 10% or more, annual MIP drops off after 11 years. Below 10% down, it typically lasts for the life of the loan unless you refinance into a different loan type.