CalculatorWhat Is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). The FHA does not lend money directly — instead it guarantees a portion of the loan against default, which lets approved lenders offer mortgages to borrowers who might not qualify for conventional financing. Created in 1934 to expand homeownership during the Great Depression, the program remains one of the most widely used paths to a first home today.
The 3.5% Down Payment
The headline benefit of an FHA loan is the low down payment. If your credit score is 580 or higher, you can buy with just 3.5% down — $10,500 on a $300,000 home. Borrowers with scores between 500 and 579 are still eligible but must contribute at least 10%. Crucially, FHA allows 100% of the down payment and closing costs to come from a documented gift from a relative, employer, or approved assistance program, so you do not necessarily need years of savings to get started.
Mortgage Insurance Premium (MIP) Explained
Because FHA borrowers put down so little, the program protects lenders with a mortgage insurance premium that comes in two parts. The first is an upfront premium (UFMIP) of 1.75% of the loan amount, which most buyers roll into the loan balance rather than pay at closing. The second is an annual premium — generally between 0.15% and 0.75% of the balance depending on your loan term, loan size, and loan-to-value ratio — divided into 12 monthly payments. The key difference from conventional PMI is timing: if your down payment is below 10%, FHA annual MIP stays for the life of the loan. That is why many homeowners refinance into a conventional loan once they build roughly 20% equity, eliminating the premium entirely.
Credit Score and DTI Requirements
FHA's official credit floor is 580 for the 3.5% down option, well below the 620–640 most conventional programs expect. Debt-to-income (DTI) flexibility is just as important: FHA will often approve total DTI ratios up to 43%, and sometimes as high as 50% with strong compensating factors like cash reserves or a long employment history. Remember that lenders can impose stricter "overlays" on top of FHA minimums, so it pays to shop more than one lender if your credit or DTI is borderline.
2026 FHA Loan Limits
FHA caps how much you can borrow based on your county's median home price. For 2026 (HUD Mortgagee Letter 2025-23), the standard floor for a single-family home is $541,287 across most of the country, while high-cost metros such as parts of California, New York, and Hawaii reach a ceiling of $1,249,125. Special exception areas — Alaska, Hawaii, Guam, and the U.S. Virgin Islands — go as high as $1,873,687 for a one-unit property. If the home you want exceeds your county limit, you would need a larger down payment or a different loan type such as a conventional or jumbo mortgage.
Who FHA Loans Are Best For
FHA financing shines for first-time buyers, borrowers rebuilding credit, and households with limited savings or a higher DTI. The trade-off is the ongoing mortgage insurance, which can make an FHA loan more expensive over the long run than a conventional loan once you have solid credit and equity. A good rule of thumb: if your score is under about 680 or your down payment is below 5%, run the numbers on FHA; if you have 720+ credit and 5%+ down, compare it carefully against a conventional loan before deciding. Use the calculator above to model your exact payment, then check your state below for local price and tax context.