What FHA is
FHA loans are insured by the Federal Housing Administration, which absorbs part of the lender's risk. That insurance is what allows lower down payments and more flexible credit standards than conventional lending. FHA is not just for first-time buyers — any qualifying buyer can use it — but it's the program most often recommended when savings or credit are the constraint.
The numbers for 2026
- Down payment: 3.5% minimum (with a 580+ credit score). Below 580, 10% down is the general standard.
- Loan limits: The 2026 floor is $541,287 for a one-unit property, with a national high-cost ceiling of $1,249,125. Most Minnesota counties sit at or near the floor.
- Mortgage insurance: An upfront premium of 1.75% of the loan amount, typically financed, plus an annual premium of typically 0.55% of the balance, paid monthly.
The one thing to understand before choosing FHA
FHA mortgage insurance is expensive relative to conventional PMI, and its duration is the catch: with less than 10% down, the annual premium generally lasts for the life of the loan. With 10% or more down, it ends after 11 years. Conventional PMI, by contrast, disappears at 80% loan-to-value. If you expect income growth or plan to be in the home long-term, that difference compounds — and it's exactly the comparison Brian prices on every FHA consultation, alongside conventional options.
Where FHA shines
- Credit flexibility. Approval paths exist for buyers with past credit events — bankruptcies and foreclosures with required seasoning periods, thin credit files, and collections — that conventional underwriting often rejects.
- Higher debt-to-income allowances. FHA's flexibility can make the difference on approval for buyers with student loans or car payments.
- First-time buyers using Minnesota Housing. FHA is one of the eligible first-mortgage products under Minnesota Housing's Start Up program, which layers down payment assistance on top.
- Gift funds and down payment help. FHA allows down payment funds from family gifts with modest documentation, which matters for young buyers in high-cost markets.
The honest comparison
At 640–660 credit with 3.5% down, FHA and conventional often land within a rounding error of each other on monthly payment. When they do, the decision usually comes down to insurance duration (conventional wins), credit flexibility (FHA wins), and your time horizon. Brian prices both side by side with your actual numbers — including what each loan costs at 1, 5, and 10 years — so the choice is informed, not defaulted.