An FHA loan is a mortgage insured by the Federal Housing Administration.
It’s designed to help buyers—especially first-time buyers—who might have lower credit scores or smaller down payments qualify for a home loan.
Key characteristics:
- Lower credit score requirement – Many lenders accept scores as low as 580 (sometimes even 500 with a larger down payment).
- Low down payment – Minimum of 3.5% if your credit score is 580+, or 10% if it’s 500–579.
- Government backing – The FHA insures the loan, reducing risk to the lender.
- Flexible debt-to-income ratios – Easier qualification even if you have more existing debt.
- Mandatory mortgage insurance – Upfront Mortgage Insurance Premium (UFMIP) and annual MIP, which remain for the life of the loan unless you refinance to a conventional loan.
Why it’s beneficial:
- Easier qualification – Great for buyers with less-than-perfect credit or limited savings.
- Small down payment – Lets you buy sooner without waiting to save 20%.
- Gift funds allowed – Down payment and closing costs can come from family or other approved sources.
- Assumable loan – If you sell, a qualified buyer can take over your FHA loan at your same rate (can be attractive if rates rise).
- More forgiving on past financial issues – Shorter waiting periods after bankruptcy or foreclosure compared to conventional loans.