If you’ve been saving up for a house and keep running into the same number — 20% down — it’s worth knowing that’s not actually a rule. It’s just the down payment conventional lenders like to see. There’s a whole different program built for people who don’t have six figures sitting in savings, and it’s one of the most common ways people buy their first home: an FHA loan.
What makes it different from a regular mortgage
An FHA loan is mortgage-backed by the Federal Housing Administration, part of HUD. The FHA doesn’t lend the money itself — you still go through a regular bank or mortgage lender — but because the government is insuring part of the risk, lenders can afford to say yes to people a conventional loan might turn down. Lower credit score, smaller down payment, higher debt load: FHA has more room for all three
That’s the whole point of the program. It was built in 1934 specifically to make homeownership possible for people who’d otherwise get priced or credit-scored out of it.
The down payment: 3.5%, not 20%
This is the number most people come to FHA for. If your credit score is 580 or higher, you can qualify with as little as 3.5% down. On a $300,000 home, that’s $10,500 instead of $60,000.
If your score falls between 500 and 579, you can still qualify — you’ll just need 10% down instead.
One thing that surprises people: that down payment doesn’t have to come entirely out of your own pocket. Gift funds from family, and in some cases down payment assistance programs, can cover some or all of it, as long as the source is documented.
The tradeoff: mortgage insurance
FHA loans require a mortgage insurance premium (MIP), and it comes in two parts:
- Upfront MIP — 1.75% of the loan amount. Most people don’t pay this in cash; it gets rolled into the loan itself.
- Annual MIP — around 0.55% of the balance, split into your monthly payment.
Here’s the part worth planning around: if you put down less than 10%, that annual MIP sticks around for the life of the loan. Put down 10% or more, and it drops off after 11 years. The only other way to get rid of it is to refinance into a conventional loan later, once you’ve built up enough equity or credit.
It’s not a hidden fee — it’s the cost of a flexible entry point. Just budget for it going in, so it’s not a surprise on your first statement.
What lenders are actually checking
Credit score and down payment get the spotlight, but lenders are also looking at:
- Debt-to-income ratio (DTI). HUD doesn’t set one hard cutoff, but most lenders want your total debt payments (including the new mortgage) under 43% of your gross income. Strong “compensating factors” — savings, steady job history, on-time rent — can sometimes push that higher.
- Steady income, usually two years of history.
- The home itself. FHA loans are for primary residences only — no rental properties or investment homes, though a duplex or fourplex count as long as you live in one unit.
Loan limits: there’s a ceiling
FHA won’t insure a loan above a certain amount, and that amount depends on where you’re buying. For 2026, the standard limit for most counties is $541,287 for a single-family home, rising to $1,249,125 in higher-cost areas. If the home you want costs more than your county’s limit, you’d need a bigger down payment to bridge the gap, or a different loan type entirely.
Is it the right fit?
FHA tends to make the most sense if your credit score is in the 580-680 range, your savings are tight, or a conventional lender’s terms haven’t worked in your favor. If your score is well above 700 and you can put more down, it’s worth comparing conventional rates first — you might come out ahead without the long-term MIP.
Either way, the first real step isn’t picking a lender. It’s pulling your credit report and knowing your actual number before anyone else tells you what it is.
