[PRIMARY_KW] are mortgages insured by the Federal Housing Administration — a division of HUD. Because the FHA guarantees the loan, lenders can offer lower credit score requirements and smaller down payments than conventional mortgages. In exchange, borrowers pay mortgage insurance premiums (MIP), which is the real cost to understand before deciding.
FHA Loan Requirements (2025)
| Requirement | Minimum Standard | Notes |
|---|---|---|
| Credit score | 580 (for 3.5% down) | 500-579 requires 10% down |
| Down payment | 3.5% of purchase price | 10% if score is 500-579 |
| Debt-to-income ratio | 43% max (50% in some cases) | Lower is better for approval |
| Employment history | 2 years stable employment | Self-employed: 2 years tax returns |
| Loan limits (2024) | $498,257 most areas | Up to $1,149,825 in high-cost areas |
| Property condition | Must meet FHA standards | Appraiser evaluates habitability |
FHA Mortgage Insurance Premiums: The Real Cost
Here is the part most people skim too quickly. FHA loans require two types of mortgage insurance: an upfront MIP of 1.75% of the loan amount (typically rolled into the loan), and an annual MIP of 0.55% per year for most borrowers — paid monthly.
On a $300,000 FHA loan: upfront MIP adds $5,250 to the loan balance. Annual MIP adds approximately $138/month to your payment. That is real money — and it continues for the life of the loan if you put less than 10% down. This is the biggest disadvantage of FHA versus conventional.
Contrast this with conventional PMI: once you reach 20% equity, PMI is removed automatically. FHA MIP does not disappear unless you refinance out of the FHA loan.
FHA vs. Conventional: When Each Wins
FHA Wins When:
- Your credit score is 580 to 640 (conventional rates are significantly higher in this range)
- You can only afford a 3.5% down payment and your score is below 680
- You have had a recent bankruptcy or foreclosure (FHA has shorter waiting periods: 2 years after bankruptcy, 3 years after foreclosure)
- Your DTI is above 43% but below 50%
Conventional Wins When:
- Your credit score is 680 or above (conventional rates become competitive or better)
- You can put 20% down (no PMI at all)
- You want PMI removed once you reach 20% equity (not possible with FHA MIP)
- The purchase price exceeds FHA loan limits in your area
FHA Loan Rates in 2025
FHA 30-year fixed rates currently average approximately 6.85%, slightly below conventional rates. However, when you add annual MIP of 0.55%, the effective total rate is closer to 7.40% — higher than a conventional loan with PMI for a borrower with a 700+ score. Always calculate the all-in cost, not just the interest rate.
How to Apply for an FHA Loan
FHA loans are issued by FHA-approved lenders — most banks, credit unions, and mortgage companies qualify. The application process is similar to a conventional mortgage. Check the HUD website for official program information and to find approved lenders in your area. See our complete homebuyer guide for the full application process.