What Is an FHA Loan?
An FHA loan is a mortgage backed by the Federal Housing Administration. It is one of the most popular loan types for first-time homebuyers because it allows lower down payments (as little as 3.5%) and accepts lower credit scores than conventional loans. The trade-off is mortgage insurance premium (MIP) — a cost that protects the lender if you default.
FHA Loan Requirements in 2026
| Requirement | Minimum | Notes |
|---|---|---|
| Credit Score (3.5% down) | 580 | Best rates require 620+ |
| Credit Score (10% down) | 500 | Higher MIP rates may apply |
| Down Payment | 3.5% | With 580+ credit score |
| Debt-to-Income Ratio | 43% | Up to 50% with compensating factors |
| Loan Limit (most areas) | $498,257 | Higher in expensive markets |
Understanding FHA Mortgage Insurance (MIP)
FHA MIP is the biggest cost difference between FHA and conventional loans. It comes in two parts:
- Upfront MIP: 1.75% of the loan amount paid at closing. On a $265,000 loan that is $4,638 — often rolled into the loan balance
- Annual MIP: 0.55% per year on most 30-year loans with less than 10% down, paid monthly. On a $265,000 loan that is about $121/month
Unlike conventional PMI which drops off at 20% equity, FHA MIP on loans with less than 10% down stays for the life of the loan. This is the most important FHA downside to understand.
FHA vs Conventional — Which Is Better?
| Factor | FHA | Conventional |
|---|---|---|
| Minimum down payment | 3.5% | 3-5% |
| Minimum credit score | 580 | 620-640 |
| Mortgage insurance | Life of loan (under 10% down) | Drops at 20% equity |
| Interest rates | Slightly lower | Slightly higher |
| Best for | Lower credit scores | Good credit, 5%+ down |
If your credit score is 680 or above and you can put 5% or more down, a conventional loan often wins long-term because PMI drops off. If your credit is below 680 or you need the lowest possible down payment, FHA is usually the better path.
FHA Loan Limits by Area in 2026
FHA loan limits vary by county. You cannot borrow more than your area's limit regardless of home price or income. Key 2026 limits:
- Most US counties (standard limit): $498,257 for single-family
- High-cost areas (Alaska, Hawaii, NYC, LA): Up to $1,209,750
- Mid-range markets: Varies between $498,257 and $1,209,750