FHA loan payment,
MIP included.

FHA loan guide

What is an FHA loan and how does it work?

An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). The FHA does not lend money directly — it insures lenders against losses if a borrower defaults. That insurance allows lenders to offer loans with lower down payments and more lenient credit requirements than conventional mortgages, making FHA loans the most popular path to homeownership for first-time buyers and those with limited savings or imperfect credit.

FHA minimum down payment requirements

The FHA's minimum down payment depends on your credit score:

• Credit score 580 or higher: 3.5% minimum down payment. On a $400,000 home, that's $14,000, compared to $80,000 for a conventional 20% down payment.
• Credit score 500–579: 10% minimum down payment. You are eligible for FHA financing, but must put down more to compensate for the higher credit risk.
• Credit score below 500: Not eligible for FHA insurance regardless of down payment. Work on improving your credit before applying.

The two layers of FHA mortgage insurance (MIP)

FHA mortgage insurance comes in two forms, and understanding both is essential to knowing your true borrowing cost:

1. Upfront MIP (UFMIP)

Every FHA loan carries an upfront mortgage insurance premium of 1.75% of the base loan amount, paid at closing. On a $386,000 base loan (3.5% down on a $400,000 home), that's $386,000 × 1.75% = $6,755 due at closing or you can roll it into the loan, bringing the financed amount to $392,755. Rolling it in avoids an out-of-pocket cash requirement but increases your loan balance and the interest you pay over the term.

2. Annual MIP

Annual MIP is charged monthly on the outstanding loan balance. Rates depend on the loan term, original LTV, and base loan amount. After HUD's March 2023 reduction (Mortgagee Letter 2023-05), the most common rates are:

When does FHA MIP cancel?

This is one of the most important and most misunderstood — aspects of FHA loans. Unlike conventional PMI, FHA annual MIP follows HUD's specific cancellation rules:

• Down payment ≥ 10% (LTV ≤ 90%): Annual MIP cancels automatically after 11 years (132 monthly payments), regardless of your remaining balance.
• Down payment < 10% (LTV > 90%): Annual MIP is permanent: it lasts for the entire loan term. The balance never reaches a threshold that cancels MIP the way conventional PMI does at 78% LTV.

This distinction can cost or save tens of thousands of dollars. A borrower who puts down 3.5% on a 30-year FHA loan will pay MIP for all 360 payments. A borrower who stretches to 10% down pays MIP for only 132 of those payments, then enjoys a lower effective monthly cost for the remaining 228 months. Run the calculator with both scenarios to see the lifetime savings.

FHA loan limits (2024)

The FHA sets annual loan limits by county and property type, updated each January. For 2024:

• Standard (floor) limit: single-family: $498,257. This applies to most U.S. counties.
• High-cost area ceiling: single-family: $1,149,825. Applies to areas like San Francisco, New York, and Honolulu where home prices are significantly above the national median.
• Alaska, Hawaii, Guam, and the U.S. Virgin Islands have a separate ceiling of $1,724,737 due to elevated construction costs.

If your loan amount exceeds the standard limit for your county, you'll need to verify that a high-cost exception applies or consider a conventional or jumbo loan instead.

FHA vs. conventional mortgage: which is better?

The right choice depends on your specific situation. Here's a structured comparison:

FHA is typically better when: your credit score is below 680, you have less than 10% for a down payment, or your debt-to-income ratio is above 45%. Conventional is often better when: your score is 700+, you can put 20% down (eliminating PMI entirely), or you need to borrow above the FHA limit.

The true cost of FHA financing

On a $400,000 home with 3.5% down at 6.75% APR over 30 years, a typical FHA loan looks like this:

• Base loan: $386,000
• Upfront MIP (1.75%, financed): $6,755
• Total financed: $392,755
• Monthly P&I: ≈ $2,548
• Monthly MIP (0.55% annual): ≈ $177
• Total monthly (PITI + MIP): ≈ $2,892
• Total MIP over 30 years: ≈ $63,720

That $63,720 in lifetime MIP is the cost of the low-down-payment option. Compared to a conventional loan at 20% down that requires no PMI, you'd pay more over time, but you'd also enter the home with $80,000 less cash deployed, which has its own opportunity cost. Use the calculator to model both scenarios.

FHA loan property requirements

FHA loans come with property standards that conventional mortgages don't require. The home must be the borrower's primary residence (no investment properties or second homes), must pass an FHA appraisal conducted by an HUD-approved appraiser, and must meet minimum property condition standards. The property must be move-in ready — significant structural issues, health hazards, or missing essential systems (heating, plumbing, electrical) can disqualify a property. Condominiums must be on the FHA's approved condo list.

How to qualify for an FHA loan

Beyond the down payment and credit score minimums, you'll need:

• Steady employment history: Typically 2 years with the same employer or in the same field.
• Debt-to-income ratio: Front-end DTI (housing costs ÷ gross income) generally ≤ 31%; back-end DTI (all monthly debts ÷ gross income) generally ≤ 43%, though some lenders approve up to 57% with compensating factors.
• Valid Social Security number and lawful U.S. residency.
• No foreclosure within the past 3 years or bankruptcy discharged less than 2 years ago (Chapter 7) or less than 1 year of a Chapter 13 repayment plan.

Disclaimer

This calculator uses published FHA MIP rates and HUD guidelines current as of 2024. Rates, limits, and rules are subject to change by HUD. Always verify current terms with an FHA-approved lender or HUD.gov before making financial decisions.