FHA loans: the low-down-payment path, and its lifetime cost
An FHA loan lets you buy a home with as little as 3.5% down and a credit score of 580 — terms no conventional loan matches. The trade is mortgage insurance you usually cannot cancel without refinancing, which is why FHA is a door-opener, not always a keeper.
The Federal Housing Administration does not lend money — it insures loans made by approved lenders, which lets them approve borrowers a conventional loan would decline. That backing is why an FHA loan accepts a 580 score with 3.5% down, or a 500 score with 10% down, and allows higher debt-to-income ratios than most conventional programs.
The catch is the insurance. FHA charges an upfront mortgage insurance premium of 1.75% of the loan, plus an annual premium built into your monthly payment. On loans with less than 10% down, that annual premium lasts the entire life of the loan — it does not fall off at 20% equity the way conventional PMI does. The only way out is to refinance into a conventional loan once your credit and equity improve.
That makes FHA a strategic first step rather than a permanent home for your mortgage. If your score is under 620 or your down payment is thin, FHA gets you in the door at a competitive rate. Once you have built equity and repaired credit, refinancing to conventional drops the insurance and can lower the payment. Run both paths before you decide — the mortgage calculator shows the difference over time.
Questions people ask
What credit score do I need for an FHA loan?
580 to qualify for the 3.5%-down program; between 500 and 579 you can still get an FHA loan but must put 10% down. Individual lenders often set their own floors above the FHA minimum, commonly around 620, so shop more than one.
Can I get rid of FHA mortgage insurance?
If you put less than 10% down, the annual premium lasts the life of the loan — the only way to remove it is to refinance into a conventional loan once you have 20% equity and qualifying credit. With 10%+ down, the premium drops off after 11 years.
Is an FHA loan better than conventional?
For lower credit or a small down payment, yes — FHA approves where conventional declines. For strong credit and 5%+ down, conventional usually wins because its PMI is cancellable and often cheaper. The break-even is your score and equity.
What can I buy with an FHA loan?
A primary residence — one to four units — that you will live in, within FHA loan limits for your county, and that passes an FHA appraisal for safety and condition. FHA loans cannot be used for investment properties or second homes.