The Federal Housing Administration backed roughly 800,000 mortgages last year, and a big chunk of those buyers put down as little as 3.5 percent.
That low down payment is the headline everyone repeats.
The fine print is where budgets quietly fall apart.
A 580 score gets you the minimum 3.5 percent down.
Drop to 500, and you're still eligible, but now you need 10 percent down.
Conventional FHA financing is off the table entirely.
That gap between 580 and 500 can mean tens of thousands of extra dollars at closing.
Then come the fees nobody mentions at the open house.
FHA loans require an upfront mortgage insurance premium of 1.75 percent of the loan amount, rolled into what you borrow.
On top of that, annual mortgage insurance premiums run between roughly 0.15 percent and 0.75 percent of the loan each year, split across your monthly payments.
Here's the part that stings in today's rate environment.
Many FHA borrowers assume they can refinance out of mortgage insurance once they build 20 percent equity.
For most loans with less than 10 percent down, that insurance sticks around for the life of the loan.
The only exit is refinancing into a conventional loan, which means requalifying at whatever rates exist then.
The debt-to-income ceiling adds another squeeze.
FHA generally wants your total monthly debts under 43 percent of gross income, though automated underwriting can stretch that to around 50 percent with compensating factors like cash reserves or a long employment history.
With credit card APRs still averaging above 20 percent and auto loan payments climbing, plenty of otherwise qualified buyers blow past that line.
Property standards trip up more deals than buyers expect.
The home has to pass an FHA appraisal covering safety and soundness.
Peeling paint, a failing roof, or a broken handrail can stall closing and push repair costs back onto the seller or onto you.
In a tight inventory market, sellers sometimes skip FHA offers for exactly this reason.
FHA caps vary by county, running from around $498,257 in low-cost areas up to roughly $1.2 million in high-cost markets.
If the house you want exceeds the local ceiling, you're shopping conventional whether you like it or not.
None of this makes FHA loans a bad choice.
For buyers with thin savings and imperfect credit, they remain one of the few doors still open.
The trick is running the full monthly number, insurance included, before falling in love with a listing.
Our take: an FHA loan is a tool, not a shortcut.
Know your score, your DTI, and the lifetime cost of that mortgage insurance before you sign.
Final Thoughts
The buyers who do the math first are the ones who don't get surprised at closing.