The 3.5% down payment gets all the attention.
That is the headline number lenders love to repeat, and it is the reason first-time buyers keep asking about Federal Housing Administration loans again as home prices stay stubbornly high.
But the requirements around an FHA loan go well beyond that single figure, and some of them can quietly cost you more than you expect.
FHA loans require two layers of it: an upfront premium of 1.75% of the loan amount, rolled into what you borrow, plus an annual premium paid monthly.
On a $300,000 loan, that upfront charge alone adds $5,250 to your balance before you make a single payment.
The monthly premium typically runs between 0.15% and 0.75% of the loan amount per year, depending on your down payment and loan term.
For most FHA borrowers who put down less than 10%, that annual mortgage insurance does not go away when you build equity.
On a conventional loan, you can often drop private mortgage insurance once you reach 20% equity.
That difference can add up to tens of thousands of dollars over 30 years, even if the FHA rate looks lower on day one.
The credit and debt rules are more forgiving than many people assume, but not as loose as the internet claims.
You can often qualify with a credit score as low as 580 and the 3.5% down payment.
Scores between 500 and 579 usually require 10% down.
Lenders also look at your debt-to-income ratio, and many cap it around 43% to 50%, though compensating factors like cash reserves or a long employment history can push the ceiling higher.
An FHA appraisal is stricter than a conventional one.
Peeling paint, a broken handrail, a missing appliance, or a roof with visible wear can stall or kill a deal because the home must meet minimum safety and soundness standards.
Sellers sometimes reject FHA offers for exactly this reason, preferring a buyer whose loan will not flag their aging furnace.
Borrowers with thinner credit files or smaller savings, clearly.
But the mortgage insurance premiums also generate billions in revenue for the agency and the lenders who originate the loans.
That does not make the program a scam, but it does mean the pitch you hear is not the whole story.
If you are shopping right now, run the numbers both ways.
Ask a lender to quote an FHA loan and a conventional loan side by side, including the total cost over the full term, not just the monthly payment.
Compare the mortgage insurance rules, the credit score tiers, and the appraisal standards.
The only way to know is to look past the down payment headline.
Our take: the FHA loan is a legitimate tool, not a trap, but it is also not automatically the cheapest path to a house.
The lifetime mortgage insurance requirement is the detail most buyers discover too late.
Final Thoughts
Get two quotes, read the fine print, and treat that 3.5% number as a starting point rather than a selling point.