Who qualifies for an FHA loan?

FHA loans are for primary-residence borrowers with a minimum 580 FICO for 3.5% down (or 500–579 FICO for 10% down). Debt-to-income ratios can go up to 50% in some cases, far higher than conventional's 45% limit. You must use the home as your primary residence within 60 days and occupy it for at least one year. FHA is popular with first-time buyers, borrowers with thin credit files, and those with a bankruptcy or foreclosure more than 2–3 years in the past. It's not means-tested — high earners can use FHA too, within county loan limits.

How much is FHA mortgage insurance really?

Two parts. Upfront MIP is 1.75% of the base loan amount, financed into the loan balance so you don't pay it in cash. Annual MIP is 0.50–0.55% of the loan balance depending on LTV, paid monthly (0.55% if LTV > 95%, 0.50% if LTV ≤ 95%, for standard loan sizes). On a $300,000 loan at 3.5% down, that's $5,250 UFMIP plus about $137/month in annual MIP. Over 10 years, total MIP paid exceeds $21,000 — a major reason refinancing out of FHA once you have 20% equity can save thousands.

Can I get rid of FHA MIP once I have equity?

Not automatically. If you put less than 10% down, annual MIP lasts the entire life of the loan — even after you hit 78% LTV. If you put 10% or more down, MIP drops off after 11 years. The only way to eliminate MIP on a <10% down FHA loan is to refinance into a conventional loan once you have 20%+ equity and strong credit. This is different from conventional PMI, which is legally required to auto-cancel at 78% LTV (per the Homeowners Protection Act).

FHA vs. conventional — which is cheaper?

It depends on down payment and credit. FHA is cheaper if: you have 580–680 FICO (conventional rates spike below 680), you're putting less than 5% down, or you have higher DTI. Conventional is cheaper if: you have 740+ FICO, you're putting 5%+ down, or you plan to stay less than 5 years (FHA's upfront MIP stings on short holds). A rough rule: under 660 FICO, FHA wins. Over 740 FICO with 10%+ down, conventional wins. In between, run both scenarios with the same lender.

Can I use FHA to buy a multi-family property?

Yes — FHA allows 2–4 unit purchases as long as you occupy one unit as your primary residence for at least one year. This is the foundation of the house-hacking strategy. FHA loan limits are higher for multi-units ($845,450 for 2-unit, $1,021,000 for 3-unit, $1,271,350 for 4-unit in 2025 standard counties). The rental income from the other units can count toward your debt-to-income qualification, sometimes letting you buy more property than your own income would allow on a single-family. See our house-hacking calculator for the full math.

FHA Loan Calculator | 3.5% Down Payment with MIP

The FHA loan: low-down-payment gateway to homeownership

The Federal Housing Administration loan is the most popular low-down-payment mortgage in America. With just 3.5% down (on a 580+ FICO) and flexible credit and debt-to-income standards, it's the default choice for first-time buyers, credit-repair buyers, and anyone who can't quite qualify for a conventional loan. In 2024, FHA loans backed roughly 16% of all home purchases — and more than 30% among first-time buyers.

But FHA isn't free money. Mortgage insurance (MIP) is substantial and usually permanent. Loan limits are capped. And property standards are strict. This calculator runs the full monthly payment including UFMIP, monthly MIP, taxes, and insurance, and compares it against a Conventional 5% down scenario so you can see exactly what FHA costs — and when it's worth it.

How FHA underwriting actually works

FHA itself doesn't lend money. Private lenders originate the loan, and the FHA insures it against default. That insurance means lenders can accept lower credit scores and higher DTI than they would on their own book. The standard FHA guidelines:

Credit score: 580+ for 3.5% down, 500–579 for 10% down. Some lenders overlay higher minimums (620 is common).
Debt-to-income: Maximum 43% typically, up to 50% with compensating factors.
Down payment: 3.5% minimum. Can be 100% gifted from a family member, employer, or approved DPA program.
Occupancy: Primary residence only. No investment properties, no second homes.
Loan limits: $524,225 in standard counties, up to $1,209,750 in high-cost areas (2025).
Waiting periods after credit events: 2 years after Chapter 7 bankruptcy, 1 year after Chapter 13 discharge, 3 years after foreclosure/short sale.

Understanding FHA mortgage insurance (MIP)

This is where FHA gets expensive. Every FHA loan carries two layers of MIP:

Upfront MIP (UFMIP): 1.75% of the base loan amount. On a $300,000 loan, that's $5,250. It's automatically financed into the loan balance — you don't bring cash for it, but you pay interest on it over 30 years. Over the life of the loan, the true cost of UFMIP approaches $12,000 in interest charges.

Annual MIP: 0.50%–0.55% of the loan balance, paid monthly. For a 30-year loan with less than 5% down, annual MIP is 0.55%. For 5%–10% down, it's 0.50%. For jumbo FHA (over $726,200 base loan), rates are 0.70%–0.75%. On a $290,000 loan, that's $133/month or $1,595/year.

MIP duration:Here's the kicker. If you put less than 10% down, MIP lasts the entire 30-year loan life. You cannot cancel it by building equity. The only escape is refinancing into a conventional loan. If you put 10%+ down, MIP drops off after 11 years — still long.

The total cost: FHA vs. Conventional

Example: $320,000 home, 6.5% rate, 30-year term.

FHA 3.5% down path:$11,200 down + $5,397 UFMIP financed = $313,997 loan. P&I: $1,984. Monthly MIP: $144. Taxes: $320. Insurance: $150. Total: $2,598/month.

Conventional 5% down path:$16,000 down = $304,000 loan. P&I: $1,921. PMI (at 95% LTV, ~0.75%): $190. Taxes: $320. Insurance: $150. Total: $2,581/month.

Close to a wash on day one. But Conventional PMI auto-drops at 78% LTV (about year 9). FHA MIP continues for all 30 years — costing an extra $43,000+ over the loan life on this example. For borrowers with 700+ FICO who can qualify for conventional, FHA's forever-MIP is the single biggest hidden cost.

When FHA is clearly the right choice

Credit under 680.Conventional loan pricing gets punitive below 680 FICO. FHA pricing is flat across the 580–850 range. If you're at 620 FICO, FHA is almost always cheaper — the MIP is offset by the 0.5%–1% lower interest rate FHA offers you vs. conventional.

You have under 5% to put down.FHA's 3.5% minimum is lower than Conventional 97's 3% only for specific Fannie/Freddie first-time buyer programs — and those have income limits. FHA has no income cap. If you have exactly 3.5% and mid-tier credit, FHA is your path.

Recent credit events. Bankruptcy 2+ years ago? Foreclosure 3+ years ago? FHA will underwrite you. Conventional usually wants 4+ years post-bankruptcy and 7 years post-foreclosure.

Higher DTI. Conventional tops out around 45% DTI in most scenarios. FHA routinely approves 50% DTI with compensating factors (cash reserves, minimal payment shock).

When FHA is NOT the right choice

High FICO + 5%+ down. If you have 740+ FICO and 5% or more down, conventional almost always wins on total cost — lower rate, lower PMI, and PMI drops automatically.

Planning to move in under 5 years.The 1.75% UFMIP is a sunk cost. If you sell in 3 years, you've paid $5,000+ in UFMIP plus ~$5,000 in monthly MIP — $10,000 in insurance on a short hold. Conventional PMI in the same scenario would be maybe $6,000.

Fixer-upper or unusual property. FHA requires the home to meet Minimum Property Standards (MPS). Peeling paint in a pre-1978 home, broken HVAC, roof issues, safety hazards — all will fail FHA appraisal. Conventional appraisals are less strict. For fixers, look at FHA 203(k) renovation loans or conventional.

FHA streamline refinance: the secret weapon

If you already have an FHA loan, the FHA Streamline Refinance is one of the best deals in mortgage: no appraisal, no income verification, no credit pull (in most cases), reduced UFMIP (only 0.01% if refinancing within 3 years of original FHA). It exists for exactly one purpose — to let existing FHA borrowers drop their rate when rates fall. If you have an FHA loan at 7.5% and rates drop to 6%, streamline is nearly always worth it.

Escape path: refi out of FHA once you qualify

The long-term plan with FHA should be: buy with FHA, build equity, refi to conventional to drop MIP. The trigger points:

Home value has risen enough that LTV is below 80% (requires new appraisal).
Your FICO has crossed 700+.
Current conventional rates are within 0.5% of your FHA rate.

When all three align, run the refi math. A $300,000 FHA loan paying $150/month in MIP = $1,800/year. Eliminating that MIP pays for $4,500 in closing costs in 2.5 years, then it's pure savings.

Related tools

Compare FHA to the full picture in our mortgage payment calculator. See if you qualify with the DTI calculator. Check other low-down-payment options in the first-time homebuyer calculator, VA loan calculator, and USDA loan calculator. If you're thinking about refinancing out of FHA later, try the refinance savings calculator. And if you're considering a 2–4 unit FHA purchase, see the house-hacking ROI calculator.

FHA loan calculator