FHA loans have long been sold as the friendly front door to homeownership, especially for buyers without a fat savings account.
The pitch is simple: 3.5% down, looser credit standards, and a government-backed guarantee.
But the fine print tells a messier story, and it's one that costs real money.
That 3.5% applies only if your credit score lands at 580 or higher.
Drop below that, down to 500, and the requirement jumps to 10%.
A buyer with a 560 score putting 3.5% down isn't getting an FHA loan — they're getting a rejection letter or a much bigger bill.
Then there's the mortgage insurance, which is where the real money leaks out.
FHA loans require an upfront premium of 1.75% of the loan amount, rolled into what you borrow.
On top of that, you pay an annual premium, typically 0.55% of the loan balance, split across monthly payments.
For most FHA borrowers putting down less than 10%, that annual premium doesn't go away when you build equity.
It stays for the life of the loan unless you refinance into a conventional mortgage.
On a $300,000 loan, that's roughly $1,650 a year — every year — for coverage that protects the lender, not you.
Compare that to conventional loans, where private mortgage insurance drops off automatically once you hit 20% equity.
They have to pay to refinance, and refinancing means new closing costs and a new rate.
FHA caps how much you can borrow, and those ceilings vary by county.
In expensive metros the cap is higher, but in plenty of markets it sits well below what a median home actually costs.
Buy a house above the limit and you're shopping conventional whether you like it or not.
Credit and debt rules trip up plenty of applicants as well.
FHA generally wants a 500 minimum score, but many lenders layer on stricter overlays — a 620 floor, for example.
Your total debt payments, including the new mortgage, typically need to stay under 43% of gross income, though exceptions exist.
The FHA collects insurance premiums that fund its reserves.
Sellers get buyers who can close with less cash.
The borrower gets in the door — and then pays for years.
For some buyers, especially those with thin credit files or prior setbacks, they're the only realistic path.
But the "3.5% down" headline hides the long-term cost.
Before you sign, run the numbers on both an FHA and a conventional loan side by side.
Ask your lender exactly when the mortgage insurance ends — and get the answer in writing.
Sometimes the loan that looks cheaper today is the expensive one over ten years.
The real question isn't whether you qualify.
Final Thoughts
It's whether the deal still looks good after the insurance never stops.