FHA Loans Explained by Coventry Enterprises of America

FHA loans are government-backed mortgages insured by the Federal Housing Administration. They are designed to make homeownership accessible to borrowers who might not qualify for conventional financing, particularly those with lower credit scores or smaller down payments. This guide from Coventry Enterprises of America explains how FHA loans work and when they make sense.

Down Payment and Credit Requirements

With a credit score of 580 or higher, FHA loans require a minimum 3.5 percent down payment. Borrowers with scores between 500 and 579 can still qualify but must put 10 percent down. Most lenders add their own credit overlays on top of FHA minimums, so while FHA technically allows 500, many lenders require at least 580 or 620.

Mortgage Insurance Premiums

Every FHA loan carries two types of mortgage insurance. The upfront MIP is 1.75 percent of the loan amount, paid at closing or rolled into the loan balance. The annual MIP is paid monthly and ranges from 0.15 to 0.75 percent of the remaining loan balance depending on the loan term, loan amount, and LTV ratio.

For most FHA loans with a down payment below 10 percent, the annual MIP continues for the life of the loan. This is a significant long-term cost. A borrower who later builds 20 percent equity cannot simply cancel FHA MIP the way a conventional borrower cancels PMI. To eliminate FHA MIP, you typically need to refinance into a conventional loan.

FHA vs. Conventional: When FHA Wins

FHA is usually better than conventional when your credit score is below 680 and your down payment is below 10 percent. In that range, FHA rates and insurance costs typically result in a lower monthly payment than a conventional loan with PMI. Above that score range, conventional loans tend to become more cost-effective, especially because PMI on a conventional loan can be canceled once equity reaches 20 percent.

FHA Loan Limits

FHA loan limits are set by county and adjust annually. In 2026 the national floor for single-family homes is approximately $498,000, with higher limits in high-cost areas. If the home you want to buy exceeds the FHA limit for your county, you need to look at conventional, jumbo, or other financing options.