What Is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. It is one of the most popular loan programs for first-time homebuyers because it allows down payments as low as 3.5%, accepts credit scores starting at 580, and has more flexible debt-to-income requirements than conventional loans.
How FHA Mortgage Insurance Works
Every FHA loan carries two layers of mortgage insurance. The first is an upfront MIP of 1.75% of the base loan amount, which is typically rolled into the loan instead of paid at closing. The second is an annual MIP charged monthly — usually 0.55% per year for 30-year loans with less than 5% down, or 0.50% with a larger down payment. Unlike conventional PMI, FHA insurance does not automatically drop off when you reach 20% equity if your down payment was below 10%; in that case it stays for the life of the loan.
FHA vs Conventional
FHA loans win on accessibility — low down payment, lenient credit, and gift funds allowed for the entire down payment. Conventional loans win once you have 20% down and a 740+ credit score, because the rate and insurance costs are usually lower. Many buyers start with FHA and refinance to a conventional loan once they have built equity.
FHA Loan Limits 2025
FHA county loan limits for 2025 range from $524,225 in low-cost areas to $1,209,750 in high-cost metros like San Francisco, New York, and Honolulu. Use this calculator to estimate the monthly cost of any home price within your county's FHA limit, then verify the limit at HUD.gov before applying.