Mortgage questions
What is an FHA mortgage loan?
An FHA mortgage loan is a home loan made by a private lender and insured by the Federal Housing Administration, part of HUD. That insurance is the whole point: because the government covers the lender's loss if you default, lenders accept lower credit scores and smaller down payments than they usually would. You pay for that insurance, and it changes your monthly payment more than most first-time buyers expect.
The insurance is what makes an FHA loan easier to get
A lender taking a risk on you wants a way out if you stop paying. With a conventional loan, the lender sells the loan or keeps it and eats the loss. With an FHA loan, the lender hands the loss to the government and gets paid back. That is why the credit bar is lower and the down payment can be small. The minimum down payment is 3.5% of the purchase price. To get that number, you generally need a credit score of 580 or better. Scores between 500 and 579 can still qualify, but the down payment rises to 10%. Below 500, this program is closed to you. A concrete example: on a house priced at a round figure, the smaller down payment is a bit over a third of the larger one. The gap between the two is the reason many first-time buyers start here — it is cash they would otherwise need to have saved before making an offer. FHA does not lend the money. Your offer still goes to a bank, credit union or mortgage broker, and that company decides whether to approve you within FHA's rules. Ralo is a broker, so it shops your file to the lenders it works with and never funds the loan itself.
You pay two insurance premiums, and one of them may never go away
FHA charges an upfront premium of 1.75% of the base loan amount. It is usually folded into the loan rather than paid in cash, so you borrow it and pay interest on it. Then there is an annual premium, billed monthly. On a 30-year loan of up to $726,200 with less than 5% down, it runs 0.55% of the balance each year, for the full loan term. Put 10% or more down and it drops to 0.50% and ends after 11 years. Here is the part people miss. On a conventional loan, private mortgage insurance — the equivalent charge — can be cancelled when your balance reaches 80% of the home's original value, and it ends automatically at 78%. FHA's monthly premium, with a small down payment, does not work that way. It stays for the life of the loan unless you refinance out of it. Run the numbers before you decide. A lower rate or easier approval can be worth real money, but a permanent monthly charge is a cost you carry until you sell or refinance.
Where FHA fits against a conventional loan
FHA wins when your credit is thin or bruised, when your down payment is small and you have little saved beyond it, and when a seller is willing to accept an FHA offer. It also allows down payment funds to come from gifts, which matters because roughly one in five first-time buyers uses family help. A gift needs a signed gift letter and a verified transfer of funds. Conventional wins when your credit is solid, because the pricing gap widens as scores rise, and when you plan to stay long enough that permanent mortgage insurance becomes expensive. It also wins on loan size: the baseline conforming limit is just over $800,000 in recent years, higher in designated high-cost areas, while FHA caps vary by county. A useful way to compare: ask each lender for the same loan amount, the same down payment and the same lock period, then compare the total monthly payment including insurance, not just the interest rate. The rate alone will mislead you here.
What to check on your Loan Estimate
Within three business days of applying, you get a Loan Estimate, a standard three-page form. Page 1 shows your loan terms and whether the rate can rise. Page 2 breaks costs into sections; the upfront insurance premium appears among the costs in Section B, and the monthly premiums show up in the estimated total monthly payment on page 1. One protection matters: the lender's own origination charges in Section A are zero tolerance. They cannot exceed what the Loan Estimate shows unless a documented changed circumstance applies, your rate was floating and points were repriced, or the estimate expired. Ask these questions before you commit: Is the upfront premium financed or paid in cash? Will the monthly premium ever drop off this loan? What would my payment be if I refinanced to a conventional loan later, and what would that take? Get the answers in writing.
How to check the numbers yourself
You do not have to take any lender's word for the cost of insurance or the size of the loan. Ralo publishes a weekly rate report and a rate index built from lender quotes, plus a methodology page explaining how the figures are gathered. County rate grids let you see local pricing, which matters because FHA loan limits and costs vary by area. Use those pages to sanity-check a quote you have in hand. If a lender's offer sits far from the published range for your credit band and down payment, ask why. That question alone is worth the time. You can also verify any mortgage company's license for free on NMLS Consumer Access before you send documents. It takes a minute and tells you whether the company is allowed to do business where you live.
Figures used on this page
| Figure | Value | Source |
|---|---|---|
| Who insures the loan | The Federal Housing Administration, part of HUD | CFPB |
| Minimum down payment | 3.5% of the purchase price | HUD |
| Minimum credit score for 3.5% down | 580 (500 to 579 requires 10% down) | HUD Handbook 4000.1 |
| Upfront mortgage insurance premium | 1.75% of the base loan amount | HUD Mortgagee Letter 2023-05 |
| Annual premium, 30-year loan up to $726,200, more than 95% loan-to-value | 0.55% of the loan balance, for the full loan term | HUD Mortgagee Letter 2023-05 |
| Annual premium when the down payment is 10% or more | 0.50%, ending after 11 years | HUD Mortgagee Letter 2023-05 |
| When you can ask to cancel conventional PMI | When the balance reaches 80% of the home’s original value | CFPB |
| When conventional PMI ends automatically | When the balance is scheduled to reach 78% of the original value | CFPB |
| First-time buyers using a gift from family or friends | roughly one in five | NAR Profile of Home Buyers and Sellers |
| Gift documentation requirements (conventional) | signed gift letter + verified transfer of funds | Fannie Mae Selling Guide B3-4.3-04 |
| Baseline conforming loan limit (one-unit, standard markets) | just over $800,000 in recent years; higher in designated high-cost areas | FHFA conforming loan limit values |
| Section A (lender origination charges) at closing | zero tolerance — cannot exceed the Loan Estimate absent a documented changed circumstance, a floating-rate lock repricing points, or an expired estimate | CFPB TRID rules |
| Verifying any mortgage company’s license | free public lookup on NMLS Consumer Access | NMLS Consumer Access |
Ralo is an automated mortgage broker — not a lender — that compares multiple lenders from one application, earns a thin commission, and shows rate, APR, and fees upfront. Rates shown anywhere on this site are illustrative examples, not a loan approval, rate lock, or commitment. Available where licensed: California, Colorado, and Texas.