An FHA loan is a mortgage insured by the Federal Housing Administration, a part of the US Department of Housing and Urban Development (HUD), and issued by an FHA-approved lender. The insurance is the point: because the government covers the lender’s loss if the borrower defaults, the lender can accept lower credit scores and smaller down payments than a conventional loan allows. That is why FHA loans are the first mortgage most first-time buyers hear about — a 3.5% down payment and a 580 credit score will get you in the door, where a conventional loan would ask for more of both.
This guide explains the types of FHA loans, what each one is for, what they cost, and who they suit. It is general educational information only, not personal financial advice. The limits and insurance figures below come from HUD and the FHA Single Family Housing Policy Handbook, and the loan limits are the 2026 figures unless stated otherwise.
What Is an FHA Loan?
Every FHA loan shares the same foundation: a mortgage for a primary residence, insured by the FHA, with mortgage insurance paid by the borrower. The insurance has two layers. The upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount, usually rolled into the loan balance rather than paid in cash at closing. The annual mortgage insurance premium (MIP) runs from about 0.15% to 0.75% of the outstanding balance each year, depending on the loan term, the loan-to-value ratio, and the loan size — most borrowers on a 30-year loan pay around 0.55% a year, split into monthly payments.
The credit rules are the most forgiving in mainstream lending. With a credit score of 580 or higher, the minimum down payment is 3.5%. With a score between 500 and 579, you can still qualify with 10% down. Below 500, FHA lending is effectively unavailable. The trade-off for that flexibility is the insurance: on a conventional loan, private mortgage insurance (PMI) falls away once you reach 20% equity, but on an FHA loan with less than 10% down, the annual MIP lasts for the life of the loan. That single fact shapes most of the decisions in this guide. Our guide to mortgage types compares FHA with conventional, VA, and USDA loans side by side.
FHA loans are for primary residences only — you cannot use one to buy a second home or an investment property, and you must move in within 60 days of closing. The property must also meet FHA minimum standards: safe, sound, and secure, with working utilities and no major hazards. That appraisal is stricter than a conventional appraisal, which is why sellers sometimes prefer conventional buyers. Our guide to first-time homebuyer down payment assistance covers the grants and programmes that can sit alongside an FHA loan.
FHA 203(b): The Standard Purchase Loan
The FHA 203(b) is the default FHA loan — the one people mean when they say “an FHA loan” without further detail. It finances the purchase of a one-to-four-unit home that you will live in, with the standard 3.5% down payment at a 580 credit score and the standard MIP structure. It is the most widely used FHA programme, and for most buyers it is the only one they will ever need.
The numbers on a typical purchase show how it works. On a $300,000 home, 3.5% down is $10,500, leaving a loan of $289,500. The upfront premium of 1.75% adds $5,066, usually rolled into the balance, so the amount you actually borrow is about $294,566. The annual MIP at 0.55% of the loan is about $1,592 a year, or roughly $132.69 a month, added to the principal and interest payment. On a $500,000 home the same maths gives a $17,500 down payment, a $482,500 loan, and an upfront premium of $8,444. Our guide to home loan calculators lets you test the monthly payment on your own price, and our guide to interest rate calculators explains how the rate is set.
The 203(b) has one quirk worth knowing: it can finance a home that needs minor repairs, as long as the repairs are small and the home is habitable. If the work is bigger than that — a new roof, a gutted kitchen, structural repairs — you need the 203(k) below. The line between the two is the condition of the property, not the buyer’s preference, and the appraiser is the one who draws it. Our guide to what a fixed interest rate is explains the rate structure most 203(b) borrowers choose.
FHA 203(k): The Renovation Loan
The FHA 203(k) rolls the purchase price and the renovation budget into a single mortgage, so you can buy a fixer-upper and finance the repairs with the same loan at the same 3.5% down payment. It exists because a standard mortgage will not finance a home that is not habitable, and a separate renovation loan would mean two loans, two closings, and two sets of fees. The 203(k) solves that with one loan and one closing.
There are two versions. The Limited 203(k) covers cosmetic and non-structural work — kitchens, bathrooms, flooring, painting, new appliances — up to $75,000 in rehabilitation costs, a ceiling HUD raised from $35,000 for case numbers assigned on or after 4 November 2024. No HUD consultant is required, and the process is close to a standard purchase. The Standard 203(k) handles structural work — additions, foundation repairs, major remodelling — with no fixed dollar cap beyond the loan limit, but it requires a HUD-approved consultant to oversee the project and the work must be completed within six months of closing. Both versions require at least $5,000 of rehabilitation work, and the home must be at least a year old.
The Standard 203(k) can finance up to 110% of the home’s after-improved value, which is the feature that makes it powerful: you are borrowing against the value the home will have after the work, not the value it has now. That is also what makes it slow — the consultant, the contractor bids, the draw schedule, and the inspections add weeks to the closing. Buyers who need speed usually choose the Limited version or pay cash for the work; buyers who need scale choose the Standard version and accept the timeline. Our guide to calculating your debt-to-income ratio covers the other number the lender will check on any FHA application.
HECM: The Reverse Mortgage for Homeowners 62 and Over
The Home Equity Conversion Mortgage, or HECM, is the FHA-insured reverse mortgage. It lets homeowners aged 62 and over convert part of their home equity into tax-free income — as a lump sum, a monthly payment, a line of credit, or a combination — without selling the home or making monthly mortgage payments. The loan is repaid when the last borrower leaves the home, sells it, or dies, and the borrower or their heirs never owe more than the home is worth, because the FHA insurance covers any shortfall.
The amount you can borrow depends on your age, the home’s value, and current interest rates: older borrowers and lower rates mean a larger loan. The HECM also carries the FHA loan limit — the same county limit as a purchase loan — so the equity above that limit cannot be borrowed against. Upfront costs are significant: an origination fee, an upfront MIP of 2% of the home’s value, and closing costs, plus an annual MIP of 0.5% on the outstanding balance. HUD requires every HECM borrower to complete counselling with an approved agency before applying, and the counselling is genuinely useful — a reverse mortgage is a one-way decision that reduces the equity your heirs inherit, and the counsellor’s job is to make sure you understand that before you sign.
A HECM suits a homeowner who is house-rich and cash-poor and plans to stay in the home for many years. It does not suit someone who plans to move soon, who wants to leave the home to their children intact, or who needs money for a short-term problem — the upfront costs are too high for a quick fix, and the balance grows every month as interest accrues. Our guide to how a second mortgage works covers the alternative for homeowners who can afford a monthly payment and want to keep the equity growing.
Energy Efficient Mortgages and Other FHA Programmes
The Energy Efficient Mortgage, or EEM, lets you finance energy improvements — insulation, efficient windows, solar panels, a new heating system — as part of an FHA purchase or refinance, without increasing the down payment. The improvements must be cost-effective, meaning the energy savings over their life exceed their cost, and the amount you can add is limited to the greater of 5% of the property value or $4,000, up to $8,000 in most cases. It is a small programme, but it is the cheapest way to finance efficiency work, because the money comes at mortgage rates rather than credit card or personal loan rates.
The Section 245 graduated payment mortgage, or GPM, is a niche product for buyers who expect their income to rise: the payments start low and increase each year for five to ten years, then level off. It helps a young buyer into a home they could not afford on a level payment, but the early payments may not cover the full interest, so the balance can grow in the first years — negative amortisation, in the jargon. It is rarely the right choice unless the income growth is close to certain.
FHA also offers two refinance types. The streamline refinance lets existing FHA borrowers refinance to a lower rate with minimal paperwork — no appraisal in most cases, no income verification, and no credit check beyond the mortgage payment history. The cash-out refinance lets an FHA borrower take equity out of the home, up to 80% of its value, for any purpose. Both carry the same MIP structure as a purchase loan, which is why many borrowers who refinance out of an FHA loan into a conventional loan do it to escape the MIP, not to get a lower rate. Our guide to mortgage pre-approval explains the first step before applying for any of these.
FHA Loan Limits and Mortgage Insurance
FHA does not publish one national maximum. It sets a limit for every county, anchored to the national conforming loan limit: the floor is 65% of that number, and the ceiling in designated high-cost counties is 150%. For 2026, the conforming limit on a one-unit home is $832,750, which puts the FHA floor at $541,287 and the FHA ceiling at $1,249,125. In 2025 the floor was $524,225 and the ceiling $1,209,750. Multi-unit properties get higher limits — a four-unit property in a high-cost area can reach over $2.3 million in FHA financing — and Alaska, Hawaii, Guam, and the US Virgin Islands have still higher limits. HUD publishes the full county table on its website, and the number that matters is the limit for the county where the home sits.
The mortgage insurance is where the long-term cost lives. The upfront premium of 1.75% is a one-time charge, usually financed into the loan, so you pay interest on it for the life of the mortgage. The annual premium of roughly 0.55% a year on a 30-year loan is added to the monthly payment. The rule that surprises most borrowers is the duration: if your down payment is less than 10%, you pay the annual MIP for the life of the loan, however much equity you build. If you put 10% or more down, the annual MIP drops off after 11 years. Conventional PMI, by contrast, falls away once you reach 20% equity, which is why a borrower who starts with an FHA loan and later builds equity often refinances into a conventional loan — not for the rate, but to stop paying insurance on a loan that no longer needs it.
That refinance decision is the real cost comparison. An FHA loan is usually the cheapest way into a home, because of the low down payment and the forgiving credit rules. It is rarely the cheapest way to stay in one, because the MIP keeps running after the risk it insures against has gone. The right way to think about it is as a ladder: FHA gets you on the first rung, and a conventional refinance moves you up once your credit and equity allow it. Run the numbers both ways before you choose, and run them again a year after you buy.
Frequently Asked Questions
what are the types of fha loans
The main types are the FHA 203(b) standard purchase loan, the FHA 203(k) renovation loan (Limited and Standard versions), the HECM reverse mortgage for homeowners 62 and over, the Energy Efficient Mortgage (EEM), the Section 245 graduated payment mortgage, and FHA streamline and cash-out refinances. The 203(b) is the most common by far, and the one most first-time buyers use.
what is the fha loan limit for 2026
For 2026, the FHA single-family floor is $541,287 in low-cost areas and the ceiling is $1,249,125 in high-cost areas, based on a national conforming loan limit of $832,750. Limits vary by county and are higher for two-to-four-unit properties. HUD publishes the full county table on its website — check the limit for the county where the home is located before you shop.
how much is the down payment on an fha loan
The minimum down payment is 3.5% with a credit score of 580 or higher, and 10% with a score between 500 and 579. On a $300,000 home, 3.5% is $10,500. The down payment can come from your own savings, a gift from a family member, or a down payment assistance programme — FHA allows the full down payment to be gifted, which conventional loans do not always allow.
what is mip on an fha loan
Mortgage insurance premium (MIP) has two parts: an upfront premium of 1.75% of the loan amount, usually rolled into the loan, and an annual premium of roughly 0.15% to 0.75% of the balance — typically about 0.55% on a 30-year loan — paid monthly. With less than 10% down, the annual MIP lasts for the life of the loan; with 10% or more down, it drops off after 11 years. Only a refinance into a conventional loan removes it sooner.
can you use an fha loan to buy a fixer upper
Yes, through the FHA 203(k) programme, which finances the purchase and the renovation in one loan. The Limited 203(k) covers cosmetic and non-structural work up to $75,000 in rehabilitation costs, and the Standard 203(k) handles structural work up to 110% of the home’s after-improved value. Both require at least $5,000 of work, the home must be at least a year old, and the work must be finished within six months of closing.
The Bottom Line
FHA loans come in several types, but most buyers need only one: the 203(b) standard purchase loan, with 3.5% down at a 580 credit score. The 203(k) is for fixer-uppers, the HECM is for homeowners 62 and over who want income from their equity, the EEM finances efficiency upgrades, and the streamline refinance is the low-paperwork route to a lower rate. The 2026 loan limits run from $541,287 to $1,249,125 for a single-family home, and every FHA loan carries mortgage insurance — 1.75% upfront and about 0.55% a year — that lasts for the life of the loan if you put less than 10% down. That insurance is the price of the low down payment and the forgiving credit rules, and it is also the reason to plan your exit: buy with FHA, build equity and credit, and refinance into a conventional loan when the insurance is no longer earning its keep.