An FHA loan is the loan that gets most first-time buyers in the door. Low down payment, forgiving credit, and a process built for people buying their first home. If you’ve heard that you need 20% down and perfect credit to buy a house, FHA is the proof that you don’t.
But the low down payment isn’t free. The mortgage insurance never goes away on its own. Here’s the real cost, the real rules, and how to decide whether FHA is your loan.
The requirements (2026, California)
| Requirement | FHA standard |
|---|---|
| Credit score | 580+ for 3.5% down; 500–579 needs 10% down; under 500 is not eligible |
| Down payment | 3.5% minimum at 580+ credit; 10% at 500–579 |
| Loan limits (1-unit, 2026) | $541,287 floor to $1,249,125 ceiling (LA/Orange); San Diego $1,104,000 |
| Occupancy | Primary residence only |
| Upfront mortgage insurance premium (UFMIP) | 1.75% of the loan, usually financed |
| Annual mortgage insurance premium (MIP) | 0.55% of the loan per year, paid monthly |
| Income limit | None |
| Debt-to-income | 43% max if your score is 500–579; up to 50% if 580+ with reserves |
One detail that trips people up: at 500–579, you can still get an FHA loan, but you need 10% down and your debt-to-income ratio is capped at 43%. At 580+, the down payment drops to 3.5% and the DTI cap rises to 50% with reserves. That 580 line matters — it’s the difference between needing $70,000 and needing $24,500 on a $700,000 house.
What it actually costs per month
Assumptions, stated plainly so you can check me: FHA 30-year fixed at 6.94% (national average, November 6, 2026). Property tax 1.25% of price per year. Homeowners insurance ~0.5% of value per year. Upfront MIP 1.75% financed into the loan. Annual MIP 0.55% of the loan, paid monthly. No HOA, no other debts. Closing costs are on top of the down payment and are not in these numbers.
$600,000 house
| Line item | Monthly |
|---|---|
| Down payment (3.5%) | $21,000 cash |
| Loan | $590,265 (incl. $10,265 upfront MIP financed) |
| Principal & interest (6.94%) | $3,896 |
| Property tax (1.25%) | $625 |
| Homeowners insurance (~0.5%/yr) | $250 |
| MIP (0.55%/yr) | $270 |
| Total monthly payment | $5,041 |
Income needed at 43% debt-to-income, no other debts: about $140,700/year. At 25% of pre-tax income (the budgeting rule I recommend): about $242,000/year.
$700,000 house
| Line item | Monthly |
|---|---|
| Down payment (3.5%) | $24,500 cash |
| Loan | $687,321 (incl. $11,821 upfront MIP financed) |
| Principal & interest (6.94%) | $4,545 |
| Property tax (1.25%) | $729 |
| Homeowners insurance (~0.5%/yr) | $292 |
| MIP (0.55%/yr) | $315 |
| Total monthly payment | $5,881 |
Income needed at 43% debt-to-income, no other debts: about $164,100/year. At 25% of pre-tax income: about $282,300/year.
$800,000 house
| Line item | Monthly |
|---|---|
| Down payment (3.5%) | $28,000 cash |
| Loan | $784,377 (incl. $13,377 upfront MIP financed) |
| Principal & interest (6.94%) | $5,194 |
| Property tax (1.25%) | $833 |
| Homeowners insurance (~0.5%/yr) | $333 |
| MIP (0.55%/yr) | $360 |
| Total monthly payment | $6,721 |
Income needed at 43% debt-to-income, no other debts: about $187,600/year. At 25% of pre-tax income: about $322,600/year.
Notice the pattern: the MIP is $270–$360 a month, every month, for as long as you have the loan. That’s the cost of the low down payment. It adds up to $3,240–$4,320 a year that a conventional borrower at 20% down doesn’t pay at all.
The mortgage insurance problem — and the fix
Here’s the part most FHA explanations skip. On a conventional loan, PMI drops off when you hit 20% equity. On an FHA loan at 3.5% down, the annual MIP stays for the life of the loan. It doesn’t drop off at 80%. It doesn’t drop off at 78%. The only way to get rid of it is to refinance into a conventional loan once you have 20% equity.
There is one exception: if you put 10% or more down on an FHA loan, the MIP drops off after 11 years. But almost nobody puts 10% down on FHA — at that point, conventional is usually the better loan.
So the honest way to think about FHA: it’s a starter loan. You use it to get in the door, you build equity, and when you have 20% equity you refinance into conventional and the $315 a month disappears. Budget for that refinance from the start — it’s part of the plan, not a surprise.
Can down payment assistance cover the 3.5%?
Yes — and this is where FHA gets powerful for first-time buyers. The 3.5% down payment can come from down payment assistance programs:
- CalHFA MyHome covers up to 3.5% as a deferred-payment junior loan.
- CalHFA ZIP adds another 3% for closing costs.
- GSFA Platinum covers up to 5% as a grant (forgiven after 3 years) or as a deferred loan.
- Empowered 3.5% covers the full 3.5% and is forgiven after just 6 months.
- Dream For All is closed. The 2026 window ran February 24–March 16, 2026, and no new applications are being accepted. Don’t plan around it.
So yes — it’s possible to buy with FHA and have the entire down payment covered by assistance. What you still need is your own cash for closing costs, reserves, and the earnest money deposit. See Down Payment Assistance Programs for the full breakdown.
Other FHA programs worth knowing
FHA isn’t one loan — it’s a family of them. The ones first-time buyers ask about most:
- FHA adjustable-rate mortgages (ARMs) — lower starter rates, then the rate adjusts. Worth considering if you plan to move or refinance within a few years.
- FHA Streamline Refinance — refinance an existing FHA loan to a lower rate with minimal paperwork, no appraisal in most cases, and no income verification.
- FHA 203(k) — buy a fixer and finance the renovation in the same loan. One loan, one payment, one closing. The renovation budget is based on the after-repair value.
- FHA condo loans — FHA can finance condos, but the building has to be FHA-approved (or meet the single-unit approval rules). About half of California condo buildings aren’t approved, so check before you fall in love with a unit.
- HECM (reverse mortgage) — for homeowners 62 and older. Not a first-time buyer product, but your parents might ask.
- Energy Efficient Mortgage (EEM) — finance energy improvements into your FHA loan.
- Section 203(h) — for victims of a presidentially declared disaster. If a wildfire or flood took your home, FHA 203(h) offers 100% financing.
Who FHA is for — and who it isn’t
FHA is for you if: your credit is 580–679, your cash is tight and you need the lowest down payment, or you need down payment assistance to cover the 3.5%.
FHA is probably not for you if: your credit is 680+ and you have 10–20% saved (conventional is cheaper), you’re a veteran (VA beats FHA on every number), or you’re buying a condo in a building that isn’t FHA-approved.
Dat’s take
The low down payment isn’t free — know what it costs before you sign.
What to do with this
- Check your credit score honestly — 580 gets you in, 620+ gets you better pricing, 680+ means you should compare conventional.
- Run your payment at your price in the Mortgage Payment Calculator.
- Check whether down payment assistance can cover your 3.5% — and confirm the program is actually funded before you count on it.
- Then start your pre-approval and I’ll run your numbers on FHA and conventional side by side, so you can see exactly what the low down payment costs you.
Rates and limits verified November 8, 2026: FHA rate 6.94% (national average, November 6, 2026); loan limits $541,287–$1,249,125 (HUD Mortgagee Letter 2025-23); upfront MIP 1.75% and annual MIP 0.55% (FHA published schedule). Property tax 1.25% and insurance ~0.5%/yr are the site’s standard assumptions — your county and your quote will differ. No HOA or closing costs included. This is education, not a rate quote or a loan approval. Dat Nguyen, Certified Mortgage Advisor, NMLS 1379110, Everyday Lending Group.
First Time Home Buyer Pros Podcast — Episode 6: What Is an FHA Loan?