If you've been house hunting with a tight budget, the Federal Housing Administration's loan program has long been one of the few realistic paths to a mortgage.
FHA loans are backed by the government, which lets lenders say yes to buyers with lower credit scores and smaller down payments than conventional loans typically allow.
But the rules are easy to get wrong, and a single misstep can push your closing date back by weeks.
The headline number most people hear is 3.5 percent down.
That applies if your credit score lands at 580 or higher.
Drop between 500 and 579, and the requirement jumps to 10 percent down.
Below 500, you're generally out of luck with an FHA loan.
Your credit score isn't the only gatekeeper.
Lenders still run your full financial picture, and FHA guidelines cap how much of your monthly income can go toward debt.
As a rough guide, your total debt payments, including the new mortgage, usually need to stay under about 43 percent of your gross monthly income, though some lenders stretch higher with compensating factors.
The home has to pass an FHA appraisal, which inspects for health and safety issues like peeling paint, a failing roof, or a broken furnace.
Sellers sometimes balk at fixing these items, which is why some buyers lose deals to conventional offers.
Knowing this upfront can save you weeks of frustration.
Then come the fees that surprise first-timers.
You'll pay an upfront mortgage insurance premium of 1.75 percent of the loan amount, which can be rolled into the loan.
On top of that, annual mortgage insurance premiums typically run between 0.45 percent and 1.05 percent of the loan balance, split across your monthly payments.
For most FHA borrowers putting down less than 10 percent, that annual insurance doesn't fall off until you've paid the loan for 11 years or refinanced into a conventional loan.
On a $300,000 mortgage, that can add well over $100 a month for a decade.
None of this makes FHA loans a bad choice.
For buyers with thin credit files, a recent bankruptcy, or limited savings, they're often the only door that opens.
But it pays to compare a conventional loan quote side by side, especially if your credit score has climbed since you started shopping.
Ask your lender two blunt questions: What's my total monthly payment with insurance included, and how long will I pay that insurance?
The answers often change which loan wins. **Our take:** FHA loans remain a genuine lifeline for buyers locked out of conventional financing, and the 3.5 percent down path is real.
But the mortgage insurance math is where budgets quietly break, so run the full monthly number before you fall in love with a house.
Final Thoughts
A slightly higher rate on a conventional loan can still cost you less over ten years.