Is an FHA Loan Worth It?

FHA gets a bad reputation from people who only ever look at the mortgage insurance. That is one real cost in a program built to solve a specific problem, and the problem it solves is the one most first-time buyers actually have.

Here is what the program does for you.

It approves credit that conventional declines

FHA's published thresholds are the lowest of any widely available program: 3.5% down at a credit score of 580 or higher, and 10% down between 500 and 579.

The number is not the point, though. The point is what sits behind it. FHA underwriting is more forgiving about the things that end conventional applications — a bankruptcy or foreclosure in the recent past, a thin credit file, a debt-to-income ratio above conventional comfort, a year of self-employment income that does not look like the year before it.

One caution worth stating plainly: individual lenders add their own overlays on top of FHA's minimums, and those vary a great deal. A 600-score borrower declined at one lender is frequently approved at another with the same file and the same documents. This is the single most useful thing about working with a broker rather than one lender — nobody's single set of overlays is the final word on your file.

The down payment can come from somebody else

FHA allows the entire 3.5% to be a gift from a family member, employer, labor union, close friend with a documented interest, or an approved down payment assistance program. There is no requirement that any of it be your own saved funds.

This is a bigger deal than it sounds. It is often the actual mechanism by which a first-time buyer with good income and no savings becomes a homeowner — and it stacks with the state programs, which is why Texas down payment assistance and California's MyHome program both pair with FHA financing.

Higher limits than people expect, in expensive counties

For 2026, FHA limits run from a floor of $541,287 to a ceiling of $1,249,125 for one-unit properties, depending on county.

The ceiling surprises people. In high-cost counties — and California has more of them than any other state — FHA reaches well past what anyone thinks of as a starter home.

The loan is assumable

An FHA loan can be taken over by a qualified buyer, interest rate included, with lender approval. Conventional loans generally cannot.

In a rising-rate market this is a real asset attached to your property, and most sellers never learn they have it.

The cost, stated plainly

FHA charges two mortgage insurance premiums: an upfront premium of 1.75% of the loan amount, which can be financed in, and an annual premium collected monthly that varies by loan term, loan amount, and loan-to-value.

The figure that matters is not the premium. It is the duration.

Per HUD Mortgagee Letter 2023-05:

• Loan-to-value above 90% — annual MIP runs for the mortgage term. On a 30-year loan at 3.5% down, that is the life of the loan.
• Loan-to-value at or below 90% — annual MIP runs 11 years, then falls off.

Read that boundary again, because it is the whole decision. Put less than 10% down on an FHA loan and the mortgage insurance never cancels. The only way out is refinancing, which means qualifying again, at whatever rates exist then, with closing costs.

Put 10% down and it ends after 11 years.

So is an FHA loan worth it?

It depends on which side of that line you land on, and on what conventional would cost you.

FHA is usually the right answer if your credit score is below roughly 660, if you have a recent credit event, or if your down payment is under 5% and conventional pricing at your score is punishing. In those cases the comparison is not FHA versus conventional. It is FHA versus not buying.

Conventional is usually the right answer if your score is comfortably above 700 and you can reach 5% down. Conventional mortgage insurance cancels at 20% equity by request and automatically at 22%. That cancellation is worth a great deal over the years you would otherwise be paying FHA MIP.

The in-between case is where it pays to run both. Scores in the 660 to 700 range with 5% to 10% down genuinely go either way, and the answer depends on the pricing available that week. We run both and show you the two side by side. If conventional wins, we will tell you so.

There is also a route people forget: start with FHA because it is what you qualify for today, then refinance to conventional once your credit and equity support it. That is a legitimate plan rather than a failure, and it is worth deciding on deliberately at the start rather than discovering in year six.

For the full requirements, see our FHA loan program page. For a direct comparison, FHA vs conventional goes deeper.

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FAQ

What credit score do I need for an FHA loan? FHA's published minimum is 580 for 3.5% down, and 500 to 579 requires 10% down. Individual lenders apply their own overlays above those minimums, so the same file can be declined by one lender and approved by another.

Does FHA mortgage insurance ever go away? It depends on your loan-to-value at origination. Per HUD Mortgagee Letter 2023-05, annual MIP runs for the mortgage term when LTV is above 90% — meaning the life of the loan at 3.5% down — and for 11 years when LTV is at or below 90%. Refinancing is the only exit from the first case.

Can my FHA down payment be a gift? Yes. The entire 3.5% can come from a family member, employer, labor union, a close friend with a documented interest, or an approved down payment assistance program. None of it has to be your own saved funds.

What is the FHA loan limit for 2026? It depends on the county. HUD's 2026 limits run from a floor of $541,287 to a ceiling of $1,249,125 for one-unit properties. Check your specific county before assuming you need a different program.

Is an FHA loan worth it, or should I use conventional? Below roughly a 660 score, or with a recent credit event, FHA is usually the stronger option. Comfortably above 700 with 5% down, conventional usually costs less over time because its mortgage insurance cancels. Between those, run both.

Are FHA loans assumable? Yes, by a qualified buyer with lender approval. Most conventional loans are not.