What Is an FHA Loan?
An FHA loan is made by a private lender and insured by the Federal Housing Administration, which is part of HUD. FHA does not lend the money directly.
The insurance protects the lender against certain losses if a borrower defaults. Borrowers pay for this protection through mortgage insurance premiums.
One option to compare. FHA qualification standards can be more flexible than conventional standards, but the complete cost and eligibility still depend on your scenario.
Source: CFPB: What is an FHA loan?
How Much Cash Will I Need?
Eligible borrowers may qualify with a down payment as low as 3.5%. That minimum does not apply to every borrower, and meeting it does not guarantee approval. Credit qualifications and lender requirements still matter.
A simple, hypothetical purchase example
| Item | Example amount |
|---|---|
| Purchase price | $400,000 |
| 3.5% down payment | $14,000 |
| Base loan amount | $386,000, before any financed upfront mortgage insurance |
Illustration only, assuming the purchase price supports this calculation. Not an offer or approval. Closing costs, prepaid expenses, escrow funding and any applicable reserves are additional considerations.
Acceptable gifts or assistance may help with required funds, subject to documentation and program rules. Ask about the source, repayment terms and eligibility before including assistance in your budget.
Sources: CFPB’s FHA overview and HUD’s FHA facts.
Understand FHA Mortgage Insurance
Upfront premium
Standard FHA financing generally includes an upfront mortgage insurance premium. It may be paid at closing or financed into the loan, increasing the balance and borrowing cost.
Ongoing premium
An annual mortgage insurance premium is generally collected through monthly payments. Its amount depends on factors such as loan term, loan amount and initial loan-to-value ratio.
How long does the ongoing premium last?
For most new standard FHA purchase loans, the starting loan-to-value ratio determines the duration:
| Initial loan-to-value ratio | General annual MIP duration |
|---|---|
| 90% or less | 11 years |
| Above 90% | The mortgage term |
FHA insurance does not follow the same cancellation rules as conventional private mortgage insurance. Confirm the rules for your specific loan; do not assume increased home equity alone removes FHA premiums.
Sources: CFPB: Mortgage insurance and HUD’s mortgage insurance premium schedule. Exceptions and different rules may apply to certain programs or older loans.
FHA vs. Conventional Financing
| Consideration | FHA | Conventional |
|---|---|---|
| Program | Government-insured financing from private lenders. | Financing outside a specific government insurance program. |
| Down payment | As low as 3.5% for eligible borrowers. | Low-down-payment options exist; eligibility varies. |
| Credit | Generally more flexible credit standards. | Requirements and pricing depend on the program and profile. |
| Mortgage insurance | Generally upfront and ongoing premiums with FHA duration rules. | PMI is typically required below 20% down and may be canceled when applicable conditions are met. |
| Which costs less? | Compare actual Loan Estimates for your credit, down payment and property scenario. | |
A low advertised rate alone does not settle the comparison. Include mortgage insurance, closing costs, cash to close and the total payment.
See CFPB’s PMI explanation and its Loan Estimate comparison guide.
What Do Lenders Review?
The lender evaluates the complete file, including:
- Credit and mortgage or housing-payment history
- Documented income and employment, as applicable
- Monthly debts and debt-to-income ratio
- Funds for closing and their acceptable sources
- Property value, condition and intended occupancy
Self-employed income may be eligible when it meets documentation requirements. FHA guidelines do not replace the lender’s review, and lenders may apply additional requirements.
Which Properties May Qualify?
FHA purchase financing generally serves an owner-occupied primary residence. Eligible property types may include single-family homes, qualifying two- to four-unit properties, eligible condominiums and certain manufactured homes. Each has specific requirements.
Check the county loan limit
FHA loan limits vary by county, unit count and year. They are separate from conventional conforming limits. Confirm the applicable limit before setting a purchase budget.
Look up official FHA mortgage limits. HUD’s 2026 limits guidance applies to the relevant 2026 case-number assignments.
An appraisal is not a home inspection
An FHA appraisal supports the lender’s value and property review. It does not replace an independent home inspection or guarantee the home’s condition. Discuss potential repairs and the purchase timeline early.
Source: HUD: Get a home inspection.
Prepare for Your Conversation With Stan
Start with your purchase goal, estimated price, property location, available funds, income sources and monthly obligations.
A loan review may require identification, income and employment records, asset statements, housing-payment information and transaction documents. Ask for the document list that fits your income and loan purpose.
Discuss a secure delivery method before sending records. This preview does not accept financial documents.
Common Questions
Is 3.5% the total cash needed to buy?
No. It is an example of the minimum down payment for eligible borrowers. Closing costs, prepaid expenses and other requirements can add to the funds needed.
Can gift funds help with the down payment?
Acceptable gifts may be used, subject to FHA and lender rules. The source and transfer must be documented, and the lender determines whether the funds qualify.
Can I use self-employed income?
Potentially. The lender must review acceptable income documents and determine that the income meets program requirements.
Does mortgage insurance protect me if I miss payments?
It protects the lender against certain losses. You remain responsible for repayment, and missed payments can have serious consequences.
Can FHA insurance disappear when I reach 20% equity?
Do not assume it will. FHA premium duration follows its own rules, including the initial loan-to-value ratio. Ask about your loan’s specific requirements.
How do I choose between FHA and conventional?
Compare qualification, upfront cash, total payment, insurance duration and actual loan costs for the options available to you.
Start with a budget. Explore the possibilities.
Talk with Stan about your income, credit and available funds. Explore relevant financing options through West Capital Lending’s wholesale lending network.
No obligation to apply. Online requests are in preview mode and are not submitted yet.
Explore More Mortgage Guides
Follow Stan’s market commentary at RatesOutlook.com and learn about his background at StanTheLoanMan.com.
HUD’s FHA Single Family Housing Policy Handbook. Linked resources explain general concepts and program rules; they do not establish the options available for your scenario.
Important informationFor educational purposes only. Loan programs, rates, terms and eligibility may change. All loans are subject to credit approval, property valuation, underwriting and applicable lender guidelines. This page is not a commitment to lend or a guarantee of approval, rate, loan amount or terms. Availability depends on borrower qualifications, property, state licensing and lender requirements.