FHA Loans Explained: Low Down Payment Options for First-Time Buyers

FHA loans are insured by the Federal Housing Administration and designed to make homeownership accessible to more Americans. Key features:

• Down payment: As low as 3.5% with a 580+ credit score; 10% with a 500–579 score
• Credit score: More flexible than conventional — 580 minimum for 3.5% down
• DTI ratio: Up to 57% in some cases
• Loan limits: Vary by county — $498,257 in most areas, up to $1,149,825 in high-cost areas

The main drawback of FHA loans is the mandatory mortgage insurance premium (MIP). Unlike conventional PMI, FHA MIP cannot be removed if you put less than 10% down — it lasts the life of the loan.

MIP has two components:

• Upfront MIP: 1.75% of the loan amount, typically rolled into the loan
• Annual MIP: 0.55% of the loan balance per year, paid monthly

On a $350,000 loan, annual MIP adds about $160/month. This is why many buyers who qualify for conventional loans choose them over FHA — conventional PMI can be removed once you reach 20% equity.