Low Down Payment
Eligible borrowers may purchase with as little as 3.5% down.
FHA Mortgages
Flexible Qualification. Low Down Payment.
FHA financing combines a low down payment with flexible underwriting, making it worth comparing when conventional financing doesn't produce the best qualification — or the best overall structure.
- 3.5% Down*
- Flexible Credit Guidelines*
- Gift Funds Permitted*
- 1-4 Unit Primary Residences*
Quick Answer
An FHA loan is a government-insured mortgage designed for an eligible primary residence. FHA may allow as little as 3.5% down for qualifying borrowers and can offer more flexibility around credit and debt-to-income than conventional financing in certain scenarios. The tradeoff is FHA mortgage insurance, so the right comparison should consider qualification, cash required, monthly payment, and the borrower's longer-term plan.
*Subject to FHA eligibility, credit, property, occupancy, loan-limit, and underwriting requirements.
Where FHA Can Be Powerful
FHA Is More Than a Low-Credit Loan.
Flexible Underwriting
FHA may provide additional flexibility in certain credit and debt-to-income scenarios.
Gift Funds
Eligible gift funds may potentially cover some or all of the required investment and/or closing funds, subject to FHA documentation requirements.
Owner-Occupied 1-4 Units
Eligible FHA financing can be used for qualifying 1-4 unit properties when applicable owner-occupancy requirements are satisfied.
3.5% Down Can Get You Into More Than a Starter Home.
For borrowers meeting applicable FHA credit requirements, maximum FHA purchase financing can generally reach approximately 96.5% of the property's value or applicable acquisition calculation.
Purchase Price
$600,000
3.5% Down
$21,000
Base Loan
approximately $579,000
Illustrative example only. FHA loan limits and eligibility still apply. The upfront mortgage insurance premium is separate from the base loan amount shown above.
Understand the Tradeoff
FHA Has Two Layers of Mortgage Insurance.
Upfront Mortgage Insurance Premium (UFMIP)
An upfront FHA mortgage-insurance premium applies to most FHA forward mortgages. It can generally be financed into the mortgage or paid according to applicable FHA requirements.
Annual Mortgage Insurance Premium (MIP)
FHA also charges an annual mortgage-insurance premium that is generally collected through the monthly mortgage payment. The amount and duration depend on applicable FHA rules, including factors such as loan term, loan-to-value, and origination date.
Mortgage insurance is part of the cost of accessing FHA's leverage and underwriting flexibility.
Does FHA Mortgage Insurance Stay Forever?
- For many current FHA mortgages with an original loan-to-value above 90%, annual MIP generally continues for the mortgage term under current FHA rules.
- For certain FHA mortgages originated at 90% LTV or less, annual MIP may have a shorter applicable duration.
This is one reason an FHA borrower should revisit the mortgage as equity, credit, income, and market conditions change.
Explore Refinance OptionsAn FHA Detail Many Borrowers Miss
Refinancing FHA to FHA? Part of Your Upfront Premium May Still Have Value.
When an existing FHA-insured mortgage is refinanced into another FHA-insured mortgage within the applicable three-year period, HUD may provide a refund credit for a portion of the UFMIP paid on the prior FHA loan. That credit is generally applied toward the UFMIP required on the new FHA-insured mortgage.
- 1Existing FHA Loan
- 2Eligible FHA-to-FHA Refinance
- 3Available UFMIP Refund Credit
- 4Reduces UFMIP Due on New FHA Loan
The available credit declines over time according to HUD's applicable refund schedule, and not every borrower will have a credit available.
This is one of the numbers that should be checked before comparing an FHA-to-FHA refinance against another refinance strategy.
HUD publishes its own upfront premium refund information at hud.gov.
Already Have FHA? Your Next Refinance May Be Simpler.
Eligible existing FHA borrowers may potentially use an FHA Streamline Refinance, which is specifically designed for refinancing an existing FHA-insured mortgage and may involve reduced documentation compared with a traditional refinance. The transaction must satisfy applicable FHA requirements, including the required benefit to the borrower.
Explore FHA Streamline RefinancingDon't Assume Conventional Is Automatically Cheaper.
FHA
Potential strengths
- 3.5% minimum down in eligible scenarios
- Flexible underwriting
- Potentially favorable execution for certain credit profiles
- Gift funds
- Assumable financing
- FHA Streamline opportunity later
Tradeoff: Upfront + annual mortgage insurance.
Conventional
Potential strengths
- Low-down-payment options
- Removable PMI under applicable requirements
- Potentially stronger economics for certain borrower profiles
- Broader occupancy options
Tradeoff: Pricing and qualification can become less favorable depending on credit, LTV, and other risk characteristics.
The question isn't which program has the better reputation. It's which one produces the better approval and financial outcome for your file.Compare FHA vs Conventional
If You're VA-Eligible, Compare VA First.
For an eligible Veteran or service member, VA should generally be included in the comparison because eligible VA financing may offer 0% down and no monthly mortgage insurance. FHA can still make sense in certain borrower, co-borrower, entitlement, property, or transaction structures.
Eligibility gives you another option. It doesn't eliminate the need to compare the numbers.Explore VA Loans
House Hacking
One Mortgage. Up to Four Units.
FHA may finance an eligible 2-4 unit property when the borrower occupies the property as their primary residence and all applicable FHA requirements are satisfied.
- You Live Here
- Unit 2
- Unit 3
- Unit 4
Eligible rental income from the additional units may potentially help with qualification under applicable FHA guidelines. Not every 2-4 unit transaction qualifies.
For the right buyer, FHA can be a path from homeownership into real estate ownership.
Your FHA Loan May Have Value to the Next Buyer.
FHA-insured mortgages are generally assumable by a qualifying buyer, subject to FHA, lender/servicer, credit, underwriting, and assumption requirements. Assumption is never automatic, but it can become particularly valuable when the existing FHA note rate is materially below prevailing market rates.
A low-rate assumable mortgage can become part of the property's future value proposition.
FHA Loan Limits Depend on the Property and County.
FHA establishes mortgage limits that vary by location and number of units and can change annually. In higher-cost California counties such as San Diego, Los Angeles, and Orange County, those limits can be materially higher than the national floor.
Tell me the property county and number of units and I'll verify the current FHA limit.
Compare the Actual Numbers
FHA Isn't a Backup Plan. It's Another Tool.
Let's compare FHA against the other financing you're eligible for — including the down payment, rate, mortgage insurance, cash required, qualification, and longer-term strategy.
The right loan is the one that gets you approved without losing sight of what it costs to own.
Frequently Asked Questions
An FHA loan is a mortgage insured by the Federal Housing Administration and made by an FHA-approved lender. That insurance allows lenders to offer lower down payments and more flexible qualification on an eligible primary residence than many conventional programs.
Eligible borrowers meeting applicable FHA credit requirements may purchase with as little as 3.5% down, so maximum FHA purchase financing generally reaches approximately 96.5% of value or the applicable acquisition calculation. FHA loan limits, property, occupancy, and underwriting requirements still apply.
FHA sets minimum credit requirements, and individual lenders may apply their own additional overlays that are stricter than FHA's published guidelines. Rather than focusing on one number, the practical question is which lenders will approve your full profile and how that approval prices.
Eligible gift funds from an approved source may potentially cover some or all of the required investment and closing funds, subject to FHA's documentation, sourcing, and paper-trail requirements. The gift letter and transfer records matter as much as the money itself.
It depends on the loan. For many current FHA mortgages with an original loan-to-value above 90%, annual MIP generally continues for the mortgage term under current FHA rules, while certain FHA mortgages originated at 90% LTV or less may have a shorter applicable duration. Many borrowers revisit the mortgage as equity, credit, income, and market conditions change.
UFMIP is the upfront FHA mortgage insurance premium that applies to most FHA forward mortgages. It can generally be financed into the mortgage or paid according to applicable FHA requirements, and it is separate from the annual premium collected monthly.
Potentially — but it usually isn't a cash refund in an FHA-to-FHA refinance. If you refinance an existing FHA-insured mortgage into another FHA-insured mortgage within three years, HUD may provide a refund credit for a portion of the upfront mortgage insurance premium paid on the prior loan. The available credit declines over time and is applied toward the UFMIP required on the new FHA loan. If you're comparing an FHA Streamline or other FHA-to-FHA refinance, I can check the available refund credit as part of the analysis.
FHA may finance an eligible 2-4 unit property when the borrower occupies one unit as their primary residence and all applicable FHA requirements are satisfied. Eligible rental income from the additional units may potentially help with qualification under applicable FHA guidelines, though not every multi-unit transaction qualifies.
FHA-insured mortgages are generally assumable by a qualifying buyer, subject to FHA, lender/servicer, credit, underwriting, and assumption requirements. Assumption is never automatic, but a materially below-market FHA note rate can become a real part of the property's future value proposition.
FHA can be more competitive than conventional for certain borrower profiles, particularly when conventional pricing or mortgage insurance is affected by credit, leverage, or other risk factors. At stronger profiles, conventional may become more attractive. The right answer requires comparing the actual rate, mortgage insurance, cash required, and payment.
For an eligible Veteran or service member, VA should generally be included in the comparison because eligible VA financing may offer 0% down and no monthly mortgage insurance. FHA can still make sense in certain borrower, co-borrower, entitlement, property, or transaction structures.
Eligible existing FHA borrowers may potentially use an FHA Streamline Refinance, which is designed specifically for refinancing an existing FHA-insured mortgage and may involve reduced documentation compared with a traditional refinance. The transaction must satisfy applicable FHA requirements, including the required benefit to the borrower.