FHA loans have a reputation as the friendly front door to homeownership.
The pitch is simple: lower credit scores allowed, smaller down payments, and more flexible rules than conventional loans.
For a lot of first-time buyers staring at a $400,000 median home price, that sounds like the only door that opens.
The catch is that "easier to qualify" and "cheaper" are two very different things, and the gap between them is where borrowers get surprised.
Here's what the Federal Housing Administration actually requires in 2024.
You generally need a credit score of at least 580 to put down 3.5%.
Scores between 500 and 579 can still qualify, but you'll need 10% down.
Your total monthly debt payments — mortgage, car, student loans, credit cards — should stay under roughly 43% to 50% of your gross income, depending on the lender's tolerance.
The property has to be your primary residence, and it must pass an FHA appraisal, which is stricter than a standard one.
Every FHA loan carries two mortgage insurance premiums.
One is an upfront fee equal to 1.75% of the loan amount, which you can roll into the loan but still pay interest on.
The other is an annual premium, usually 0.55% of the loan balance, split across your monthly payments.
On a $350,000 loan, that's roughly $160 a month on top of principal and interest — and unlike private mortgage insurance on a conventional loan, it typically does not fall off when you build 20% equity.
In many cases you keep paying it for the life of the loan unless you refinance.
Run the numbers and the "cheap" loan can cost more per month than a conventional one with a slightly higher rate.
FHA loans make real sense if your credit score is genuinely bruised, if your savings are thin, or if you're buying in a market where sellers still accept FHA offers.
They're also a lifeline for buyers who've been turned down elsewhere.
But if your score is 700 or above, you should be comparing carefully.
A conventional loan with 5% down often beats an FHA loan once you factor in the lifetime insurance premiums.
Talk to at least two lenders and ask them to break down the total five-year cost, not just the interest rate.
One more thing worth watching: FHA loan limits adjust every year and vary by county.
In expensive metros they're higher than most people assume, but in rural areas they can be surprisingly low.
Check the limit for your specific county before you fall in love with a listing.
The bottom line: FHA loans are a tool, not a shortcut.
They lower the barrier to entry and raise the cost of staying in the house.
Final Thoughts
That trade-off is worth it for some buyers and quietly expensive for others — and the lenders advertising them rarely lead with the second part.