How FHA Loans Work (MIP, Down Payment & Limits)
An FHA loan is a mortgage insured by the Federal Housing Administration, which lets lenders accept a 3.5% down payment and credit scores from 580. In exchange, every borrower pays two mortgage insurance premiums: 1.75% of the loan upfront and an annual premium of 0.15% to 0.75%, which can run for the life of the loan.
Who FHA loans are for, and the down payment rules
The FHA does not lend money itself. A private lender makes the loan, and the Federal Housing Administration — part of HUD — insures it, which is what lets the lender accept a small down payment and a lower credit score than a conventional loan would allow. The trade is mortgage insurance on every loan, with no exceptions.
The minimum down payment is 3.5% with a credit score of 580 or higher, or 10% with a score of 500 to 579. Below 500, FHA-insured financing is not available. These are HUD's floors, not guarantees: individual lenders can set stricter minimums, and many do — a 620 score is a common lender overlay even though HUD allows 580.
The home must be your primary residence. You have to move in within 60 days of closing and live there for at least a year, so FHA loans do not work for investment properties or second homes. The loan also has to fit your county's FHA limit, covered below.
The two MIP charges, and what they cost
Every FHA loan carries two separate insurance charges. The upfront mortgage insurance premium (UFMIP) is a one-time 1.75% of the base loan amount, charged at closing. Most buyers finance it into the loan, which raises the amount they pay interest on for the whole term: on a $337,750 base loan the UFMIP is $5,911, making the total loan $343,661.
The monthly amount is not a flat rate times the original balance. HUD charges each year's premium on the average outstanding balance for that year, so the payment falls as the balance amortises. On a $350,000 home with 3.5% down at 6.5% over 30 years, year-1 monthly MIP is $157 at 0.55%, and total MIP over the loan is $37,000. With 10% down instead, the rate drops to 0.50%, MIP ends after 11 years, and the total is $16,277.
Base loans above the $832,750 conforming limit pay higher rates: 0.70% or 0.75% on terms over 15 years, and 0.15% to 0.65% on terms of 15 years or less. The duration rule is the same either way — the dividing line is the down payment. Under 10% down, annual MIP runs for the life of the loan; at 10% or more, it ends after 11 years.
The annual MIP is the ongoing charge, paid monthly. Its rate comes from HUD Mortgagee Letter 2023-05 and depends on the loan term, the loan-to-value ratio and whether the base loan is above the national conforming limit ($832,750 for 2026). For base loans at or below that limit, the rates are:
| Term | Loan-to-value | Annual MIP | How long it lasts |
|---|---|---|---|
| Over 15 years | 90% or less | 0.50% | 11 years |
| Over 15 years | 90% to 95% | 0.50% | Life of the loan |
| Over 15 years | Over 95% | 0.55% | Life of the loan |
| 15 years or less | 90% or less | 0.15% | 11 years |
| 15 years or less | Over 90% | 0.40% | Life of the loan |
Loan limits in 2026
FHA caps the base loan by county, and the cap moves with local home prices. For 2026 the national floor is $541,287 for a one-unit home in low-cost counties, and the ceiling is $1,249,125 in the highest-cost counties, set by HUD Mortgagee Letter 2025-23. Most counties sit at the floor; a smaller number sit at the ceiling, and some land in between.
The limit applies to the base loan — price minus down payment — before any financed upfront MIP, not to the home price. A $600,000 home in a floor county still qualifies if the base loan is $541,287 or less, which means a down payment of about $58,700. Alaska, Hawaii, Guam and the U.S. Virgin Islands have a higher special-exception ceiling of $1,873,625 for a one-unit home.
FHA vs conventional: when each wins
FHA wins when the down payment or the credit score is the constraint. A buyer with 3.5% down and a 620 score can usually get an FHA loan where a conventional lender would decline or price the loan punitively, and FHA interest rates are often slightly lower than conventional rates for the same borrower.
Conventional wins once you have 20% down or strong credit. Private mortgage insurance on a conventional loan can be cancelled — you can request it at 80% of the original value, and it must end automatically at 78% — while FHA annual MIP with less than 10% down never ends on its own. A borrower who can put 20% down and has a 720 score will almost always pay less with a conventional loan.
The common middle path is to buy with FHA, then refinance into a conventional loan once the home has gained enough equity — usually 20% — to drop mortgage insurance entirely. That refinance is also the only way to escape FHA annual MIP early when it runs for the life of the loan; an FHA streamline refinance keeps MIP in place.
Questions, answered
How much house can I buy with an FHA loan?
It depends on your county. The 2026 FHA limit for a one-unit home runs from $541,287 in low-cost counties to $1,249,125 in high-cost counties, and the limit applies to the base loan, not the price — so in a floor county you can buy a more expensive home if your down payment brings the base loan under $541,287. Your income and debts still have to support the payment under the lender's debt-to-income limits.
Do I need 20% down to avoid FHA mortgage insurance?
No — there is no down payment that avoids FHA mortgage insurance. UFMIP of 1.75% and annual MIP apply to every FHA loan, even at 20% down. What a bigger down payment changes is the rate and the duration: at 10% or more down, the annual rate on a 30-year loan is 0.50% and MIP ends after 11 years, instead of 0.55% for the life of the loan at 3.5% down.
Can I use an FHA loan for an investment property?
No. FHA loans are for primary residences only — you must move in within 60 days of closing and live in the home for at least a year. Buying a property you do not intend to live in with an FHA loan is occupancy fraud. One exception buyers use legitimately is a two- to four-unit property: you live in one unit and rent the others, and FHA allows that with higher loan limits for multi-unit homes.
What credit score do I need for an FHA loan?
HUD's minimum is 580 for the 3.5% down payment, or 500 to 579 with 10% down. In practice most lenders add their own overlays — a 620 minimum is common — so a score between 500 and 620 may qualify on paper but find few lenders willing to write the loan. A higher score does not change the MIP rate, which is set by term, loan-to-value and loan size, but it usually earns a lower interest rate.
Reviewed by Tahir Shehzad, ACMA. Figures are reviewed against the sources on our methodology page. This guide is education, not personal financial advice.