The basics
An FHA loan is a mortgage insured by the U.S. Federal Housing Administration. The federal insurance lets approved lenders accept lower down payments and more flexible credit profiles than a conventional loan typically allows.
FHA loans are the most common path to homeownership for buyers who don't fit the traditional conventional-loan profile — first-time buyers, buyers with credit history still building, and buyers with limited down-payment savings.
Who FHA works for
- Limited savings: Down payments as low as 3.5% with a 580+ credit score.
- Lower credit scores: FHA accepts scores down to 500 (with 10% down).
- Recent credit events: Bankruptcies, foreclosures, and short sales have shorter waiting periods on FHA than on conventional.
- Higher debt-to-income ratios: FHA's DTI limits are typically more flexible than conventional.
The trade-off: mortgage insurance
FHA loans require Mortgage Insurance Premium (MIP), which adds to the monthly payment. MIP comes in two parts:
- Upfront MIP: 1.75% of the loan amount, typically rolled into the loan balance at closing.
- Annual MIP: 0.55% to 0.85% of the loan amount per year, divided into 12 monthly payments.
If you put less than 10% down, MIP lasts the life of the loan — the only way to remove it is to refinance into a conventional loan once you've built 20% equity.
FHA vs. conventional with low down payment
Conventional loans now offer 3% down options for qualified first-time buyers. The right choice depends on your specifics:
- Credit score 720+: Conventional usually wins. Lower mortgage insurance and PMI falls off at 80% loan-to-value.
- Credit score 620–719: Often a wash. Worth modeling both side-by-side.
- Credit score 580–619: FHA wins by default. Most conventional programs require 620+.
- Recent credit events: FHA wins on shorter waiting periods.
Other FHA notes
- Primary residence only — no second homes or investment properties.
- Loan limits vary by county. Check the FHA limit for your area.
- The home has to meet FHA's Minimum Property Standards — basic safety and habitability checks.
- FHA also has renovation programs (203k loans) that bundle purchase and renovation into one mortgage.
Curious if FHA is right for you?
We'll model FHA, conventional, and any other program that fits your scenario. Talk to a loan officer and we'll walk through them all.
WeFund Mortgage Corporation is not affiliated with or acting on behalf of FHA, VA, USDA, or the federal government.