What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. It lets qualified buyers put down as little as 3.5% and qualify with credit scores as low as 580, making it a popular option for first-time homebuyers.

An FHA loan is a home mortgage backed by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD). The FHA doesn't lend money directly — it insures the loan, which means if you default, the FHA reimburses the private lender. That guarantee lets lenders accept borrowers with smaller down payments and lower credit scores than conventional loans typically require.

FHA loan basics

Minimum down payment: 3.5% with a credit score of 580 or higher. Borrowers with scores between 500–579 may qualify with 10% down.
Loan limits: Set annually by HUD by county; higher in high-cost areas.
Primary residence only: FHA loans cannot be used for investment properties or vacation homes.
Approved lenders only: You apply through an FHA-approved private lender, not through the government.

Mortgage insurance premiums (MIP)

FHA loans require two mortgage insurance premiums. An upfront MIP of 1.75% of the loan amount is charged at closing (it can be rolled into the loan). An annual MIP is paid monthly and ranges from 0.15% to 0.75% of the loan balance depending on loan term, loan amount, and LTV ratio. Unlike some conventional PMI, FHA annual MIP on loans with less than 10% down typically remains for the life of the loan, which is a meaningful long-run cost to weigh against the low entry requirements.

FHA vs. conventional: quick comparison

FHA: minimum 3.5% down, 580+ score, MIP for life of loan (in most cases).
Conventional: down payments from 3%, typically requires 620+ score, PMI cancellable once equity reaches 20%.
FHA may cost more over the long run due to permanent MIP, even if it's easier to enter.
Both loan types are subject to standard debt-to-income ratio review by the lender.

How to apply

Find an FHA-approved lender through HUD's resources. The application process is similar to any mortgage: income verification, asset documentation, credit pull, and an FHA-required appraisal. The CFPB's homebuying guide walks through the full process step by step.

FHA program facts

FHA loans require a minimum down payment of 3.5% for borrowers with credit scores of 580 or higher, and 10% for scores between 500 and 579. — HUD / FHA
FHA loans carry an upfront mortgage insurance premium of 1.75% of the base loan amount, payable at closing or rolled into the loan. — HUD / FHA
The CFPB provides a free, step-by-step homebuying process guide covering loan types, rate shopping, and closing. — CFPB

Key takeaways

FHA = government-insured mortgage through an approved private lender — not a government lender.
Minimum 3.5% down with a 580+ credit score; 10% down for scores 500–579.
Mortgage insurance premiums (MIP) add to your monthly payment and often last the loan's life.
Best suited for buyers who need flexible entry requirements and plan to stay long enough to absorb MIP costs.
Compare total cost (not just rate) against conventional options before deciding.