What Is an FHA Loan?
An FHA loan is a mortgage backed by the Federal Housing Administration, a division of HUD. The federal government doesn't lend the money — Blue Collar Home Loans does — but the FHA insures the loan, which lets lenders extend credit to borrowers who might not qualify for a conventional mortgage.
That insurance is also why FHA loans require mortgage insurance premiums (MIP), which cover the lender if the borrower defaults. It's the trade-off for getting in with less money down and a lower credit score.
Who FHA Loans Are Right For
An FHA loan is often the best fit if you:
- Have a credit score between 580 and 680
- Can put down at least 3.5%
- Are a first-time homebuyer (or haven't owned a home in the last three years)
- Have some bumps in your credit history but are otherwise in good financial shape
- Are buying a primary residence (FHA loans aren't for investment properties)
If your credit is 700+ and you can put 5% or more down, a conventional loan is usually cheaper over the long run because conventional PMI eventually drops off — FHA's MIP usually doesn't.
FHA Loan Requirements in Arizona
| Requirement | FHA Standard |
|---|---|
| Minimum Credit Score | 580 (with 3.5% down) or 500 (with 10% down) |
| Minimum Down Payment | 3.5% |
| Maximum DTI Ratio | 43% (can stretch higher with strong factors) |
| Property Type | Primary residence only |
| Loan Limit (most AZ counties, 2026) | $524,225 |
FHA Mortgage Insurance Explained
FHA loans come with two layers of mortgage insurance:
Upfront Mortgage Insurance Premium (UFMIP): 1.75% of the loan amount, paid at closing. Most borrowers roll this into the loan rather than pay it out of pocket.
Annual Mortgage Insurance Premium (MIP): Paid monthly. The rate depends on your loan term, loan-to-value ratio, and loan amount, but typically falls between 0.45% and 1.05% of the loan balance per year.
The catch on duration: For most FHA loans with less than 10% down, MIP stays on the loan for the entire term — even after you've built up significant equity. The way to remove it is to refinance into a conventional loan once you've hit 20% equity, which Jason can help you plan for from the start.
FHA vs. Conventional in Arizona
| Feature | FHA | Conventional |
|---|---|---|
| Minimum Credit Score | 580 | 620 |
| Minimum Down Payment | 3.5% | 3% (first-time buyer programs) |
| Mortgage Insurance | UFMIP + MIP (life of loan) | PMI (drops at 20% equity) |
Bottom line: FHA is the path of least resistance if your credit is 580-660 or you've had recent credit issues. Conventional wins for borrowers with stronger credit and a longer-term hold strategy because PMI ends and FHA's MIP often doesn't.
