FHA loans have long been sold as the friendlier path to homeownership — lower credit scores accepted, smaller down payments, forgiving guidelines.
That pitch is mostly true, but it glosses over a detail that costs borrowers real money and surprises plenty of first-timers at the closing table: mortgage insurance that doesn't go away the way conventional loans allow.
The Federal Housing Administration requires a 3.5% down payment if your credit score is 580 or higher.
Between 500 and 579, you'll need 10% down.
Sellers can contribute up to 6% toward your closing costs, and the debt-to-income ratio generally needs to stay around 43%, though compensating factors can stretch that.
You pay an upfront mortgage insurance premium of 1.75% of the loan amount, which typically gets rolled into the loan.
On top of that, annual mortgage insurance premiums run roughly 0.55% to 0.75% of the loan balance per year, split into monthly payments.
On a $300,000 loan, that monthly insurance alone can exceed $150.
The part that stings: if you put down less than 10%, that annual premium usually lasts the life of the loan.
Refinancing into a conventional loan is the main escape hatch, and that requires enough equity and a good enough credit score to qualify.
This isn't a scam — it's disclosed — but it's the kind of fine print that turns a "cheaper" loan into a more expensive one over 30 years.
The FHA, which collects the premiums to cover lender losses, and the lenders, who offload default risk.
Borrowers get access, which genuinely matters for people locked out of conventional lending.
But access has a price, and it's paid monthly for decades.
FHA loan limits also vary by county, and in high-cost metros they top $1.2 million for 2025.
That sounds generous until you realize the loan limits are tied to median home prices, meaning they rise fastest exactly where buyers are already stretched thinnest.
The practical takeaway for American buyers: run the numbers both ways before assuming FHA is your best bet.
If your credit score is near 620 or above and you can scrape together 5% down, a conventional loan with private mortgage insurance may cost less overall — and that PMI can be cancelled once you hit 20% equity.
Also worth noting: FHA appraisals are stricter than conventional ones.
Peeling paint, a broken handrail, or a questionable roof can stall a deal.
Sellers sometimes quietly steer away from FHA offers for this reason, which matters in competitive markets where you're already fighting cash buyers.
For buyers with thin credit files, modest savings, or past credit dings, they remain one of the few realistic doors into homeownership.
The mistake is treating "easier to qualify" as "cheaper overall." Those are different things, and the gap between them shows up every month for as long as you hold the loan. **The bottom line:** FHA loans trade upfront flexibility for long-term cost, and that trade only makes sense if conventional financing is genuinely out of reach.
Final Thoughts
Ask your lender to quote both scenarios side by side, in writing, with the full insurance schedule spelled out.