An FHA loan lets you buy a home with as little as 3.5% down — but it adds two costs a conventional loan does not have: an upfront mortgage insurance premium (MIP) and a monthly MIP. Work out the true payment before you apply.
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Estimates only, for planning. FHA upfront MIP is 1.75% of the base loan (added to the loan) and monthly MIP is 0.55% per year on the base loan. Your lender’s final figures may differ.
How an FHA loan works
FHA loans are backed by the Federal Housing Administration and are built for first-time buyers and buyers with smaller savings or lower credit scores. The headline benefit is the 3.5% minimum down payment — on a $350,000 home that is $12,250, versus $70,000 for a 20%-down conventional loan. The trade-off is MIP (mortgage insurance premium), which has two parts:
Upfront MIP — 1.75% of the loan. It is usually rolled into the loan, so you borrow slightly more than the home price minus your down payment. Monthly MIP — 0.55% a year on the base loan, paid every month. Unlike conventional PMI, FHA MIP does not drop off at 20% equity: with less than 10% down it lasts for the life of the loan, and the only way to remove it is to refinance into a conventional loan.
Who qualifies
Credit score 580+ for the 3.5% down payment (500–579 needs 10% down). The home must be your primary residence, pass an FHA appraisal, and fall under the FHA loan limit for your county (the 2025 floor is $472,030 in most counties, higher in expensive areas). Your total debt-to-income ratio usually needs to stay under about 43%–50%.
Worked example — $350,000 home, 3.5% down, 6.5%, 30 years
Down payment $12,250, so the base loan is $337,750. Upfront MIP of 1.75% adds $5,910.63, making the total loan $343,660.62. Principal and interest come to $2,172.17 a month. Monthly MIP at 0.55% a year adds $154.80, property tax of $4,200 a year adds $350, and insurance of $1,800 a year adds $150. The full payment is $2,826.97 a month.
FHA payments at different home prices (6.5%, 30 years, 3.5% down)
| Home price | Down (3.5%) | Principal & interest | Monthly MIP |
|---|---|---|---|
| $250,000 | $8,750.00 | $1,551.55 | $110.57 |
| $350,000 | $12,250.00 | $2,172.17 | $154.80 |
| $450,000 | $15,750.00 | $2,792.79 | $199.03 |
Principal & interest and MIP only — add your local property tax and insurance on top. Figures computed at 6.5% over 30 years.
FHA vs conventional — which is cheaper?
With a small down payment, FHA usually wins on the monthly payment because FHA rates run slightly lower than conventional rates and conventional PMI is often higher than FHA’s monthly MIP. But FHA’s MIP never drops off (under 10% down), while conventional PMI disappears at 20% equity — so over 10+ years a conventional loan usually costs less in total. The common strategy: buy with FHA now, then refinance into a conventional loan once you reach 20% equity.
Frequently asked questions
What is the minimum down payment for an FHA loan?
3.5% down with a credit score of 580 or higher. With a score of 500 to 579, the minimum is 10%.
What is FHA MIP and how much does it cost?
MIP is mortgage insurance on an FHA loan. Upfront MIP is 1.75% of the loan (usually added to the loan) and monthly MIP is 0.55% a year, paid monthly.
Does FHA MIP ever go away?
With less than 10% down, MIP lasts for the life of the loan — the only way to remove it is to refinance into a conventional loan. With 10% or more down, MIP drops off after 11 years.
What credit score do I need for an FHA loan?
The FHA minimum is 500, but 500–579 requires 10% down. Most lenders want 580+ for the 3.5% down payment, and a higher score gets a better rate.
Compare FHA, Conventional and VA side by side on the same home, with the full amortization schedule and an affordability check.