FHA Loan Guide: Eligibility, 3.5% Down, MIP, and Program Variants

What Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. FHA does not lend directly — instead, FHA insures qualified loans made by FHA-approved lenders. The insurance allows lenders to extend credit to borrowers with more flexible credit and down payment than they could on a conventional loan.

FHA has been a fundamental piece of U.S. housing finance since 1934. Today, FHA insures roughly 8 million loans nationally and originates a substantial share of first-time-buyer purchases each year. Different borrower profiles favor FHA differently — first-time buyers, borrowers with more challenged credit, and borrowers with limited down payment are the most common FHA users.

FHA Eligibility

FHA eligibility has the following principal components:

1. Credit profile. FHA technically permits credit profiles down to roughly the 580 range with 3.5% down, and the 500-579 range with 10% down. Most FHA-approved lenders impose their own minimum credit overlays — typically 600-620 for the best pricing, with some specialty lenders going lower.
2. Down payment. 3.5% minimum with qualifying credit. Can come from borrower funds, gift funds from family, employer-assistance programs, or state HFA down-payment assistance.
3. Debt-to-income. Up to 43-50% total DTI depending on compensating factors (residual income, reserves, strong credit). FHA's automated underwriting system makes the call on what specific DTI is approvable.
4. Property eligibility. Primary residence only. The property must meet FHA Minimum Property Requirements (MPRs) — basic habitability and safety standards. The FHA appraisal evaluates both market value and MPR compliance.
5. Mortgage insurance. All FHA loans require FHA MIP regardless of down payment. The MIP cannot be removed by reaching 80% LTV on most modern FHA loans — it runs for the life of the loan unless the borrower refinances out of FHA.
6. Occupancy. Primary residence only. Borrowers can use FHA for a 2-4 unit property if they occupy one unit.

FHA Mortgage Insurance Premium (MIP)

FHA Mortgage Insurance Premium has two components:

1. Upfront MIP (UFMIP). 1.75% of the loan amount, paid at closing. Typically financed into the loan balance (so the actual closing-cash impact is zero).
2. Annual MIP. Paid monthly as part of the PITIA payment. The exact rate depends on the loan amount, LTV at origination, and term. For a typical 30-year FHA loan with LTV above 95%, annual MIP is 0.55% of loan amount per year.

Critically, annual MIP on modern FHA loans runs for the life of the loan in most scenarios. This is different from conventional PMI, which drops off automatically at 78% LTV based on original value or can be requested for removal at 80% LTV. To remove FHA MIP, the borrower must refinance out of FHA — typically into a conventional loan once equity reaches 20-25%.

The lifetime-MIP structure makes FHA more expensive over a long hold period than conventional with PMI. The break-even math: a borrower with strong credit who plans to hold the property for many years and accumulate equity should usually choose conventional (where PMI eventually goes away) over FHA. A borrower with more challenged credit, limited down payment, or short hold period may save more on the front end with FHA than they lose on the back end with lifetime MIP.

FHA County Loan Limits

FHA loan limits vary by county and are updated annually by HUD. The 2026 limits follow the same structure as prior years:

1. FHA 'floor'. The minimum FHA loan limit, applied to most counties. Set as 65% of the FHFA conforming loan limit for the year.
2. FHA 'ceiling'. The maximum FHA loan limit, applied to designated high-cost counties. Set as 150% of the FHFA conforming loan limit for the year.
3. Intermediate counties. Counties with median home prices between the floor and ceiling thresholds receive limits based on the local median home price.
4. Special-jurisdiction limits. Alaska, Hawaii, Guam, and the U.S. Virgin Islands have separate limit structures that are higher than the continental U.S. limits.

Most counties in our licensing footprint (Florida, Tennessee, South Carolina, Colorado, Texas) follow the FHA floor. Notable exceptions: certain Colorado mountain-resort counties have elevated FHA limits, and Monroe County (Florida Keys) has the FHA ceiling. Your loan officer can confirm the 2026 FHA limit for any specific county.

FHA 203(k) Renovation Loans

FHA 203(k) loans finance both the purchase (or refinance) and the renovation of a property in a single FHA loan. Useful for buying fixer-uppers, properties that need significant work to meet FHA Minimum Property Requirements, or properties the buyer wants to substantially renovate.

Two variants:

1. FHA 203(k) Standard. For renovations exceeding $35,000 or involving structural work, room additions, foundation work, or significant rebuilds. Requires a HUD consultant to oversee the project.
2. FHA 203(k) Limited. For renovations up to $35,000 with cosmetic and minor system improvements (kitchen, bath, paint, flooring, appliances, etc.). No HUD consultant required. Simpler process.

FHA 203(k) loans are particularly useful in markets with significant older housing stock that may not meet FHA MPRs in as-is condition — common in older Florida, Tennessee, and South Carolina markets. The loan amount is based on the after-improvement value, allowing the borrower to finance improvements that the as-is appraisal would not support.

FHA Condo Financing

FHA financing on a condo requires the condo project to be FHA-approved — a separate process from individual borrower approval. The condo project must meet FHA's project requirements regarding owner-occupancy concentration, reserve funding, financial health, insurance, litigation status, and other factors.

FHA project approval is renewed periodically. Many condo projects are not FHA-approved at any given time — particularly older coastal projects in Florida that face the same post-Surfside challenges affecting conventional condo financing. Some projects pursue 'single-unit approval' (a project-specific exception that allows individual units to be FHA-financed even without full project approval) when the project as a whole does not qualify.

Before pursuing an FHA condo loan, verify the project's FHA approval status using the HUD condo lookup tool. If the project is not approved, options include: requesting single-unit approval; pursuing project approval (typically initiated by the condo association); or switching to conventional financing if the project is conventionally approved but not FHA-approved.

FHA vs Conventional: When Does FHA Win?

FHA and conventional are the two principal program categories for borrowers who do not qualify for VA or USDA. The comparison:

1. FHA wins for: Borrowers with credit profiles too challenged for conventional pricing, borrowers with debt-to-income ratios above conventional limits, borrowers with limited down payment, borrowers planning a short hold period, borrowers using FHA 203(k) renovation, and borrowers stacking with state HFA programs that pair best with FHA.
2. Conventional wins for: Borrowers with strong credit (typically 740+), borrowers planning long hold periods (so PMI eventually drops off vs FHA's lifetime MIP), borrowers with at least 5-10% down, borrowers buying condos in projects that are conventional-approved but not FHA-approved, and borrowers using HFA Preferred / HFA Advantage conventional variants.
3. Often a close call: Borrowers with mid-tier credit (660-720) and 5-10% down often have comparable monthly payments on FHA and conventional. Run both scenarios with a loan officer to see which produces lower total cost for your specific profile.

State-Specific Notes

FHA loan mechanics are federal, but state HFA pairings vary substantially:

Florida

Florida FHA pairings with Florida Bond, Hometown Heroes, and Florida Assist are particularly valuable for first-time buyers. FHA condo approval status is a significant issue in Florida given post-Surfside project approval tightening — verify project status before assuming FHA financing is available on a Florida condo.

Texas

Texas FHA pairings with TSAHC Home Sweet Texas, TDHCA My First Texas Home, and (for veterans) Texas Veterans Land Board are common. Texas property tax rates make accurate PITIA estimation important during FHA pre-approval — the higher monthly tax escrow affects qualifying loan amount.

Tennessee

Tennessee FHA pairings with THDA Great Choice + Great Choice Plus are the standard first-time-buyer combination. Most Tennessee counties follow the FHA floor for 2026 loan limits.

South Carolina

South Carolina FHA pairings with SC Housing Homebuyer Program and Palmetto Heroes are widely used. Coastal SC FHA buyers should obtain windstorm and flood insurance quotes early — insurance costs affect PITIA and qualifying loan amount.

Colorado

Colorado FHA pairings with CHFA FirstStep are common. Some Colorado mountain-resort counties have elevated FHA limits. The metroDPA program can stack with FHA + CHFA in the Denver metro for substantial down-payment assistance.

Frequently Asked Questions