FHA loans are among the most widely used and most widely misunderstood mortgage programs in the country. Some of what buyers believe was true a decade ago and isn’t anymore. Some was never true. Here are ten myths worth correcting before you rule the program in or out.

Myth 1: FHA loans are only for first-time home buyers

fha home loans

False. There is no first-time buyer requirement. Anyone who meets the credit, income, and occupancy standards can use FHA financing, including repeat buyers and homeowners who’ve owned before.

The real restriction is occupancy: the property must be your primary residence, and you must occupy it within 60 days of closing. FHA doesn’t finance investment properties or second homes.

Myth 2: You need a 620 credit score for FHA

That’s a lender overlay, not an FHA rule. FHA permits 580 with 3.5% down and 500 with 10% down. Most lenders impose their own minimum at 620 — but not all of them do.

This is the single most consequential misconception on this list. A borrower declined at 590 by one lender may be approved by another applying program minimums. A denial is one institution’s policy, not a verdict on your eligibility. See our guide to FHA credit score requirements.

Myth 3: FHA loans cost more than conventional

Often the opposite, at least monthly. As of August 2026, the 30-year FHA average is 6.38% against 6.76% for conventional — roughly 38 basis points below.

And FHA mortgage insurance is not priced by credit score. The annual premium is 0.55% whether you’re at 580 or 780. Conventional PMI is risk-based and penalizes lower scores heavily, which is why FHA frequently produces the lower payment for borrowers under about 700. For the full comparison, see FHA vs. conventional loans.

Myth 4: FHA mortgage insurance cancels once you hit 20% equity

Usually false, and this one costs people money. On a loan originated after June 3, 2013 with less than 10% down, annual mortgage insurance runs for the life of the loan. No equity threshold cancels it. Paying down to 50% loan-to-value changes nothing.

Borrowers routinely make extra principal payments expecting to trigger cancellation that doesn’t exist. The exceptions: put 10% or more down and MIP cancels automatically after 11 years, or refinance into a conventional loan once you hold 20% equity. See how to remove FHA mortgage insurance.

Myth 5: FHA loans are only for inexpensive homes

False. The 2026 FHA limit is $541,287 in most counties and $1,249,125 in designated high-cost areas — with $1,873,625 in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

Limits are set county by county at 65% of the conforming baseline for the floor and 150% for the ceiling. Two neighboring counties can carry different figures, so verify yours before assuming.

Myth 6: You can’t buy a fixer-upper with FHA

False — that’s exactly what the 203(k) program does. It finances a purchase and its renovation in a single loan, underwritten on the home’s after-improved value.

And the limits changed recently. The Limited 203(k) now covers up to $75,000 in repairs, raised from $35,000 effective November 4, 2024, with rehabilitation periods extended to nine months for Limited and twelve for Standard. Most content still cites the old figure. See our FHA 203(k) guide.

Myth 7: A bankruptcy or foreclosure disqualifies you

False — FHA has the shortest waiting periods of any program.

  • Chapter 7: two years from discharge
  • Chapter 13: one year of on-time plan payments, with court and trustee approval
  • Foreclosure or short sale: three years from the recorded date

Documented extenuating circumstances — job loss, medical event — can shorten the Chapter 7 and foreclosure periods to one year. Conventional financing generally requires four to seven years.

Myth 8: You need to save the entire down payment yourself

False. FHA permits 100% of your down payment to come from gift funds — family, employer, or an approved charitable organization — documented with a gift letter showing the funds aren’t a loan.

Sellers may also contribute up to 6% of the purchase price toward your closing costs, which is more generous than most conventional programs allow at low down payments.

Myth 9: FHA is only for single-family houses

False. FHA finances properties with up to four units, provided you occupy one of them as your primary residence. Rental income from the other units can often help you qualify.

That makes FHA one of the few low-down-payment paths into owner-occupied multifamily — 3.5% down on a fourplex is a materially different proposition than the 25% an investor would need.

Myth 10: FHA loans aren’t assumable

False, and this is increasingly valuable. FHA loans are assumable, meaning a qualified buyer can take over your existing loan at your original interest rate.

For a homeowner who locked a low rate in 2020 or 2021, that’s a genuine selling point — one most listing agents never mention. The buyer must qualify with the servicer and cover the equity gap between your remaining balance and the sale price. See our guide to assuming a mortgage.

What FHA Actually Costs in 2026

Two premiums, both program-set rather than lender-priced:

  • Upfront MIP: 1.75% of the loan amount, typically financed into the balance
  • Annual MIP: 0.55% for most 30-year loans at minimum down payment, or 0.50% with 5% or more down, collected monthly

HUD reduced the annual premium by 30 basis points in March 2023 — from 0.85% to 0.55% — and that pricing remains in effect. For a typical borrower, that reduction saves roughly $900 a year.

One recent change worth knowing: mortgage insurance premiums became permanently tax-deductible beginning with tax year 2026 under the One Big Beautiful Bill Act, subject to income limitations. Consult a tax professional regarding your situation.

Key Takeaways on FHA Home Loans

  • FHA isn’t just for first-time buyers. Anyone meeting credit and occupancy standards qualifies — the real restriction is that it must be your primary residence.
  • The 620 minimum you’ll hear is a lender overlay. FHA permits 580 with 3.5% down, 500 with 10%. A denial is one lender’s policy, not your eligibility.
  • Mortgage insurance isn’t priced by credit score — 0.55% at 580 or 780. That’s why FHA often beats conventional monthly.
  • But it usually never cancels. Under 10% down, MIP runs the life of the loan.

Rates and program figures as of August 2026. FHA loan limits per HUD, effective January 1, 2026. Rate averages per Bankrate. Program guidelines change without notice — verify current requirements with an FHA-approved lender. RefiGuide.org is an advertising marketplace, not a lender. This article reflects the author’s editorial analysis and is not individualized financial advice. Rates and FHA lending policy change frequently. RefiGuide.org is an advertising marketplace, not a lender.