FHA Loan Calculator Guide: Down Payment, MIP, and 2026 Limits

What an FHA loan actually is

An FHA loan is a mortgage insured by the Federal Housing Administration, an agency of HUD. The FHA doesn't lend money directly. It insures private lenders against losses, which lets those lenders write mortgages with smaller down payments, lower credit scores, and more flexible debt-to-income ratios than they'd risk on their own balance sheet. The program was created in 1934 to make homeownership accessible during the Great Depression, and roughly nine decades later it's still the workhorse loan for first-time buyers — about 80% of FHA loans go to people buying their first home.

The trade-off for that flexibility is mortgage insurance. Every FHA loan carries an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, plus an annual MIP that's added to your monthly payment. On most modern FHA loans the annual MIP runs for the life of the loan unless you refinance into a conventional product. That permanence is the single most important catch to understand before choosing FHA.

Who qualifies for an FHA loan

FHA's underwriting bar is notably lower than conventional. Credit scores down to 580 qualify with the program's signature 3.5% down payment. Scores between 500 and 579 can still qualify, but require 10% down. Most lenders impose overlays — additional rules layered on top of FHA minimums — so in practice the floor at many shops is 600 or 620.

Income-wise, FHA allows debt-to-income ratios up to 43% under automated underwriting, and individual files can push higher with compensating factors like substantial reserves, residual income, or a long history of on-time payments. There is no income cap, unlike USDA. You must have a verifiable two-year work history (gaps explained), and self-employed borrowers need two years of tax returns.

You must intend to live in the property as your primary residence for at least 12 months. FHA does not finance pure investment property. It does, however, finance multi-unit owner-occupied properties of up to four units — the cornerstone of the house hacking strategy.

The 3.5% down payment

FHA's most-cited feature is the 3.5% minimum down payment. On a $400,000 home that's $14,000 of cash to close, before closing costs. The down payment can come from your own savings, a documented gift from immediate family, an employer assistance program, or a state or local down-payment assistance (DPA) program. FHA is the most DPA-friendly program in the country because the underwriting model assumes external funds will be in the mix.

There is no maximum down payment. Putting more down lowers the LTV, which reduces the annual MIP rate (from 0.55% to 0.50%) and gives you a smaller loan. Some borrowers split the difference — using FHA's easier credit standards to qualify, then putting 10% down to land in the lower MIP tier.

Understanding MIP — both upfront and annual

FHA mortgage insurance has two parts. The upfront premium is 1.75% of the loan amount, typically rolled into the loan rather than paid in cash at closing. On a $386,000 loan it adds about $6,755 to the balance you're financing.

The annual MIP is paid monthly as 1/12 of the annual rate. For a standard 30-year FHA loan with at least 5% down, the annual rate is 0.50%. For a loan with less than 5% down (typical of 3.5%-down purchases), the rate is 0.55%. On a $386,000 loan that's about $177/month — which is more than most conventional PMI policies at the same LTV.

Critically, on FHA loans originated after 2013 with less than 10% down, MIP is permanent for the life of the loan. The only way out is to refinance into a conventional loan once you have at least 20% equity. This single rule is why FHA is best understood as a 'starter loan' rather than a forever loan.

FHA loan limits in 2026

FHA loan limits are set county-by-county based on local median home prices. The 2026 baseline (low-cost areas) is roughly $524,000 for a single-family home, with high-cost ceilings near $1.2M in places like the SF Bay Area, NYC metro, and Hawaii. Two-, three-, and four-unit limits scale up — useful for multi-unit house hackers in expensive markets.

If your purchase exceeds the FHA limit in your county, you have two options: bring more cash to lower the loan amount under the limit, or switch to a conventional or jumbo loan. HUD publishes a county-by-county lookup that's updated each December.

FHA vs. conventional: a side-by-side

FHA wins on accessibility. If your credit is in the 580–680 range or your down payment is constrained, FHA usually offers the better rate and the cleaner underwriting. The MIP trade-off is real but recoverable through a refinance.

Conventional wins for stronger profiles. Borrowers with 720+ credit and at least 5% down often get a better total cost on conventional, because conventional PMI is usually cheaper than FHA MIP and can be cancelled at 80% LTV. Use our payment calculator to compare the two side by side with your real numbers.

When to refinance out of FHA

Refinancing from FHA to conventional makes sense once two conditions are met: your credit score has improved to a level that earns competitive conventional pricing (usually 700+), and your equity has reached at least 20% of the current appraised value. At that point you can eliminate the permanent MIP, which is often a $150–$300/month savings.

If you don't qualify for conventional yet but rates have dropped significantly, an FHA Streamline refinance keeps MIP but skips income documentation and often skips the appraisal — fast and cheap. The choice between Streamline and a conventional refi is a math problem; our refinance guide walks through the break-even calculation.