Last updated: March 2026
FHA Loans Explained: Requirements, MIP, and Limits
FHA loans are one of the most popular mortgage options for first-time homebuyers, and for good reason: they offer lower down payments and more flexible credit requirements than conventional loans. But they come with mandatory mortgage insurance that can add significant cost over time.
The minimum down payment is 3.5% with a credit score of 580 or higher. With a score between 500-579, you need 10% down. This makes FHA loans accessible to buyers who cannot save a 10-20% conventional down payment.
MIP has two components. The upfront premium is 1.75% of the loan amount, typically rolled into the loan balance. On a $337,750 loan (3.5% down on $350,000), that adds $5,911 to your balance. The annual premium is 0.55% of the loan amount for most 30-year loans, paid monthly — about $155/month on that same loan.
The critical difference from conventional PMI: FHA MIP may last the life of the loan. If your down payment is under 10%, MIP never drops off. You would need to refinance into a conventional loan to eliminate it. With 10% or more down, MIP drops after 11 years.
Despite the MIP costs, FHA loans can be the right choice for buyers with lower credit scores (where conventional rates would be much higher) or very limited savings. Run the numbers both ways — an FHA loan with lifetime MIP vs. waiting to save more for a conventional loan with droppable PMI.
Frequently Asked Questions
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. It allows lower down payments (3.5% minimum with 580+ credit) and more flexible qualification requirements than conventional loans. The trade-off is mandatory mortgage insurance premiums (MIP).
What is the difference between MIP and PMI?
MIP (Mortgage Insurance Premium) is specific to FHA loans and has two parts: an upfront premium (1.75% of loan) and an annual premium (0.55% for most loans). PMI (Private Mortgage Insurance) is for conventional loans and drops off at 80% LTV. FHA MIP lasts the life of the loan if you put less than 10% down.
What are current FHA loan limits?
FHA loan limits vary by county. In 2025, the floor is $498,257 for single-family homes in low-cost areas, and the ceiling is $1,149,825 in high-cost areas. Check the HUD website for your specific county's limit.
What credit score do I need for an FHA loan?
The minimum credit score is 500 with 10% down, or 580 with 3.5% down. Most lenders prefer 620+. Higher scores may qualify for better interest rates. FHA loans are designed for borrowers who may not qualify for conventional loans.
Can I remove FHA mortgage insurance?
If you put 10% or more down, MIP drops off after 11 years. If you put less than 10% down, MIP lasts the entire life of the loan. The only way to remove it is to refinance into a conventional loan once you reach 20% equity.
Is an FHA loan right for me?
FHA loans are ideal for first-time buyers with limited savings (3.5% down vs 5-20% conventional), lower credit scores (580+ vs 620+ conventional), or higher DTI ratios. However, the lifetime MIP cost can make FHA more expensive long-term than conventional loans with PMI that drops off.