At a Glance
- Down payment as low as 3.5%
- Minimum credit score of 580+
- Best for first-time buyers or those with lower credit scores
FHA loans are government-backed mortgages insured by the Federal Housing Administration, designed to make homeownership accessible to more Americans. With lower down payment requirements and more flexible credit standards, FHA loans are particularly popular among first-time homebuyers and those rebuilding their credit.
Why Choose an FHA Loan?
FHA loans offer several advantages that make them attractive to many borrowers. The minimum down payment is just 3.5% with a credit score of 580 or higher, and borrowers with scores between 500-579 may still qualify with a 10% down payment. FHA loans also allow higher debt-to-income ratios and are more forgiving of past credit issues.
Understanding FHA Mortgage Insurance
FHA loans require two types of mortgage insurance: an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, and an annual mortgage insurance premium (MIP) paid monthly. Unlike conventional PMI, FHA mortgage insurance typically remains for the life of the loan unless you refinance to a conventional mortgage.
Property Requirements
FHA loans have specific property requirements to ensure the home is safe, secure, and structurally sound. The property must be your primary residence and meet FHA minimum property standards. An FHA-approved appraiser will assess the home during the buying process.
Eligibility Requirements
- Minimum credit score of 580 for 3.5% down payment
- Credit scores 500-579 may qualify with 10% down
- Property must be your primary residence
- Debt-to-income ratio up to 43% (sometimes higher)
- Steady employment history
- Property must meet FHA minimum standards
Frequently Asked Questions
Can I use an FHA loan for a second home?
No, FHA loans are only available for primary residences. You must intend to live in the home as your main residence.
How long do I pay FHA mortgage insurance?
For loans with less than 10% down, MIP is required for the life of the loan. With 10% or more down, MIP can be removed after 11 years.
Can I use gift funds for my down payment?
Yes, FHA allows 100% of your down payment to come from gift funds from family members, employers, or approved organizations.