The Federal Housing Administration insured roughly 800,000 single-family mortgages last year, and lenders are still pitching FHA loans as the friendly path to homeownership for buyers with thin savings and imperfect credit.
The pitch is real: 3.5% down, credit scores starting at 580, and sellers allowed to cover up to 6% of closing costs.
But the math behind those numbers has quietly gotten worse, and the people selling you the loan aren't the ones paying for it.
Start with mortgage insurance, the fee that never makes the headlines.
FHA borrowers pay an upfront premium of 1.75% of the loan amount, which on a $300,000 mortgage is $5,250 tacked onto the balance on day one.
Then there's the annual premium, typically 0.55% of the loan, split into monthly payments.
On that same loan, that's about $137 a month, and here's the part that stings: for most FHA loans opened with less than 10% down, that monthly premium lasts the entire life of the loan.
Conventional loans let you drop private mortgage insurance once you hit 20% equity.
Run the full comparison and the gap widens.
A buyer with a 720 credit score and 5% down may find a conventional loan cheaper within a few years, even with a slightly higher rate, because PMI falls off and FHA's doesn't.
Many still steer moderate-income buyers toward FHA because the loans are easier to approve and sell, not because they're cheaper.
The FHA's own data shows borrowers refinancing out of FHA loans in recent years to escape the insurance premiums.
The requirements themselves are stricter than the marketing suggests.
Your total debt-to-income ratio generally needs to stay at or below 43%, though lenders can stretch to 50% with compensating factors like cash reserves or a long job history.
The property has to pass an FHA appraisal that flags chipping paint, missing handrails, and other safety issues, which can kill deals on fixer-uppers.
And the 3.5% down tier requires a 580 score; below that, you're looking at 10% down and extra scrutiny.
There are also loan limits, which vary by county and hover around $524,225 in most of the country for 2025, higher in expensive metros.
Go over the limit and FHA is off the table entirely.
Meanwhile, sellers sometimes reject FHA offers because of the appraisal repairs, which means buyers relying on this program can lose bidding wars to conventional offers with fewer strings.
For buyers with credit scores in the 580-to-660 range, little saved, and a seller willing to play along, they can be the only realistic door into a home.
But the door has a toll, and it's charged monthly for as long as you stay. **Our take:** FHA loans are a tool, not a favor, and the lifetime mortgage insurance is the fee nobody mentions at the closing table.
If your credit is above 680 and you can scrape together 5% down, get a conventional quote before you sign anything.
Final Thoughts
The best loan is the one you can refinance out of, not the one you're stuck in.