Who FHA Loans Are For
If your credit score sits in the 500s or low 600s, or your savings will not stretch to a conventional down payment, the FHA loan is the program built for you. The Federal Housing Administration does not lend money. It insures loans made by regular lenders, and that insurance lets lenders approve people the conventional market prices out.
The headline terms: 3.5% down with a credit score of 580 or higher. Between 500 and 579, you can still qualify with 10% down. No conventional program goes anywhere near that deep into the credit range.
Here’s the catch, and it is a real one. FHA charges you for that access, every month, possibly forever. More on that below.
2026 FHA Loan Limits
FHA caps how much you can borrow, and the caps moved up for 2026. Per HUD Mortgagee Letter 2025-23, effective for case numbers assigned on or after January 1, 2026, the single-family limits are:
- Floor (most counties): $541,287, up from $524,225 in 2025.
- Ceiling (high-cost areas): $1,249,125, up from $1,209,750.
- Alaska, Hawaii, Guam, U.S. Virgin Islands: up to $1,873,625.
Counties between the floor and the ceiling get a limit set at 115% of the local median home price. Multi-unit properties get higher limits: the 2026 floor for a two-unit property is $693,050, and a four-unit goes up to $1,041,125 in standard counties. Buying a duplex and living in one unit is a real FHA play.
What FHA Mortgage Insurance Costs
This is the part the glossy “3.5% down!” ads skip. FHA charges two separate premiums:
Upfront premium (UFMIP): 1.75% of the loan amount. On a $300,000 loan, that is $5,250. Almost everyone rolls it into the loan balance, which means you finance it and pay interest on it for decades.
Annual premium (MIP): 0.15% to 0.75% of the balance, paid monthly. Most borrowers pay 0.55%, the rate HUD set when it cut premiums 30 basis points in Mortgagee Letter 2023-05. On that same $300,000 loan, 0.55% is about $137 a month.
Now the part that stings. Put down less than 10% and the annual premium runs for the life of the loan. Not until you hit 20% equity. The life of the loan. Put down 10% or more and it still runs 11 years. Conventional PMI cancels automatically once you pay down to 78% of the original value. FHA insurance does not.
The standard exit: build equity, then refinance into a conventional loan and drop the insurance. It works, but it leans on future rates and a future appraisal cooperating.
FHA vs. Conventional: The Honest Comparison
Run both quotes if your score is above roughly 620. Conventional loans through Fannie Mae and Freddie Mac go as low as 3% down, and conventional PMI is cheap for borrowers with good credit and cancellable for everyone.
The pattern that holds up: the lower your credit score and down payment, the better FHA looks, because FHA’s insurance pricing does not punish a 600 score the way conventional PMI does. The higher your score, the better conventional looks, because you walk away from mortgage insurance entirely once you have equity.
A 580 score with 3.5% down? FHA is probably your only real door, and it is a good one. A 700 score with 5% down? Conventional likely wins on total cost. In between, make the lenders quote you both. Any lender doing FHA volume can price the pair in one sitting.
Other FHA Facts Worth Knowing
- Seller concessions up to 6% of the purchase price can cover your closing costs, per HUD rules. Negotiate for them.
- The home must be your primary residence and pass an FHA appraisal, which checks minimum property standards along with value.
- FHA streamline refinances let existing FHA borrowers refinance with reduced documentation when rates fall. See our refinancing guide.
Do This Next
Pull your credit score, then get FHA and conventional quotes from at least three lenders. Compare the total monthly cost, insurance included, not just the rate. Run the payments through our mortgage calculator, check our picks for first-time buyer lenders, and see how FHA fits the bigger picture at the mortgages hub.