FHA loans: 3.5% down with 580+ credit, upfront MIP (1.75% of loan), annual MIP (0.15-0.75%), county loan limits, and when FHA beats conventional financing.
The Federal Housing Administration (FHA) loan program, administered by the U.S. Department of Housing and Urban Development (HUD), is designed to help first-time homebuyers and those with limited savings or lower credit scores. Unlike conventional loans, which typically require a 620 minimum credit score and 5-20% down, FHA loans allow a credit score as low as 500 with a 10% down payment, or 580 with just 3.5% down.
The trade-off for the low down payment is mortgage insurance. Every FHA loan requires Mortgage Insurance Premiums (MIP) regardless of the down payment amount. There are two components: an upfront MIP (UFMIP) of 1.75% of the loan amount, paid at closing, and an annual MIP of 0.55% to 0.85% of the loan balance, paid monthly. For a $300,000 loan, the upfront MIP is $5,250, and the annual MIP adds roughly $138-$213 per month to the payment.
| Credit Score | Minimum Down Payment | MIP Terms |
|---|---|---|
| 580 or higher | 3.5% | Upfront 1.75% + annual 0.55-0.85% |
| 500 - 579 | 10% | Upfront 1.75% + annual 0.55-0.85% |
| Below 500 | Not eligible | N/A |
FHA loan limits are set annually by HUD and vary by county. The limit is based on a percentage of the national conforming loan limit set by the Federal Housing Finance Agency (FHFA). For 2026, the FHA floor (low-cost area limit) is $498,000, and the ceiling (high-cost area limit) is approximately $1,149,000. In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the ceiling is higher to account for construction costs.
The specific limit for your county is determined by the median home price: the limit is the lower of 115% of the median house price or 150% of the national conforming loan limit. Most standard metropolitan areas fall between the floor and ceiling. You can look up your county-specific limit at HUD.gov or use the Metriova FHA loan calculator, which includes the 2026 limit data for all U.S. counties.
| Area Type | 2026 FHA Loan Limit | Example Areas |
|---|---|---|
| Low-cost (floor) | $498,000 | Rural counties, parts of Midwest |
| Standard metro | $498,000 - $1,149,000 | Most urban areas |
| High-cost (ceiling) | $1,149,000 | NYC, LA, San Francisco, DC |
| Alaska/Hawaii | $1,724,000 (approx) | All counties |
The annual MIP rate depends on the loan-to-value (LTV) ratio, the loan term, and the loan amount. For loans over $726,200 (the 2025 high-cost threshold), the annual MIP rate is 0.75% for LTV above 90% and 0.70% for LTV at or below 90%. For loans at or below that threshold, the annual MIP ranges from 0.55% to 0.85%. Unlike conventional PMI, FHA MIP does not automatically cancel when you reach 20% equity — it lasts for the life of the loan if the down payment was less than 10%. With 10% or more down, MIP cancels after 11 years.
This is a critical difference from conventional loans. On a conventional loan with 20% down, PMI is $0. On an FHA loan with 3.5% down, the annual MIP of 0.85% on a $300,000 loan adds $2,550 per year, or $212.50 per month. Over 30 years, that is $76,500 in MIP payments alone. This is why many FHA borrowers refinance to a conventional loan as soon as they reach 20% equity, which typically takes 3-7 years depending on home price appreciation.
An FHA loan is the best option when your credit score is between 580 and 619 (too low for conventional) or when you cannot afford a 5-10% down payment. It is also useful when your debt-to-income ratio (DTI) is slightly above conventional limits, because FHA allows DTI up to 43% (and sometimes 50% with compensating factors) versus the conventional 36-43% limit.
However, if you have a 620+ credit score and can afford a 5% down payment, a conventional loan with PMI often works out cheaper than an FHA loan with MIP, because conventional PMI cancels automatically at 78% LTV. The break-even analysis depends on the loan amount, the rate spread, and how long you plan to keep the loan. The Metriova FHA loan calculator compares FHA and conventional options side by side, showing the monthly payment and total cost difference over the life of the loan.
FHA Loan Calculator — MIP & Monthly Payment
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