FHA Loans

Congress created the Federal Housing Administration in 1934 and became part of the U.S. Department of Housing and Urban Development in 1965. The US economy was in the middle of the Great Depression and it was difficult for many home buyers to take out a mortgage.

To address that problem, the FHA began insuring mortgages made by approved private lenders, protecting them against loss if a borrower defaulted. That guarantee gave lenders the confidence to offer loans with lower down payments and more flexible credit requirements than they could otherwise afford to extend — a mission the FHA still carries out today. An FHA loan isn’t issued by the government directly; it’s funded by a private lender, such as a bank or mortgage company, and insured by the FHA.

How FHA Loans Work

Because the FHA insures the loan rather than making it, lenders take on less risk when they approve an FHA borrower. That makes FHA loans one of the more accessible paths to homeownership, particularly for first-time buyers, borrowers rebuilding their credit, or anyone who hasn’t saved a large down payment. In exchange for that flexibility, FHA borrowers pay for mortgage insurance, which funds the program for future borrowers.

2026 FHA Loan Limits

FHA loan limits are set annually by HUD and vary by county based on local home prices. For 2026, the national “floor” for a one-unit property is $541,287 in most areas, rising to a “ceiling” of $1,249,125 in high-cost areas. Your maximum loan amount will depend on where the home is located.

Credit Score and Down Payment

• 580 credit score or higher: eligible for the minimum down payment of 3.5%
• 500–579 credit score: may still qualify, but typically requires a larger down payment of at least 10%
• Down payment sources: gifts from family, down payment assistance programs, and grants are generally allowed

This is one of the biggest differences between FHA and conventional financing — FHA guidelines are generally more forgiving of lower credit scores and thinner credit histories.

Mortgage Insurance

FHA loans require two types of mortgage insurance premium (MIP):

• Upfront MIP: 1.75% of the base loan amount, either paid at closing or rolled into the loan
• Annual MIP: typically around 0.55% of the loan amount for most 30-year loans, paid monthly as part of your mortgage payment

Unlike conventional PMI, FHA mortgage insurance doesn’t automatically cancel once you build equity. If your down payment is less than 10%, annual MIP generally stays for the life of the loan; with 10% or more down, it can be removed after 11 years. Many FHA borrowers eventually refinance into a conventional loan once they’ve built enough equity to drop mortgage insurance altogether.

Why Choose an FHA Loan?

FHA loans are often a good fit for first-time buyers, borrowers with limited savings, or anyone whose credit history doesn’t yet meet conventional loan standards. The lower down payment and more flexible qualifying guidelines can make homeownership possible sooner — even if it means paying mortgage insurance along the way.

Every borrower’s situation is different, and FHA guidelines can vary based on credit, income, and the property itself. If you’d like to find out whether an FHA loan is the right fit for you, reach out to discuss your goals and get pre-qualified.