What is a fha loan

What is a FHA Loan?

What's a fha loan

Understanding the concept of FHA loan

So what is a FHA loan, it is, essentially, a mortgage that’s insured by the Federal Housing Administration (FHA). For home buyers, FHA loans are especially attractive as they allow down payments of only 3.5% of the purchase price and can service credit scores of 580 and above. However, to protect the lender’s interests in case of payment default, borrowers with FHA loans do pay for monthly mortgage insurance, just as you would with a conventional loan.

Why choose a FHA loan?

Now that you are understanding what is a FHA loan, let us help you understand that they are getting very popular these days due to various benefits they offer to borrowers. Some of them are discussed below-

  • Lower down-payment requirements (as low as 3.5%)
  • Less rigorous lending standards – higher buying power and easier approval
  • Insured/ backed by the Federal Housing Administration – thus low interest rates


Benefits of a FHA loan

  • Low down payment

Unlike conventional mortgages that often require down payments anywhere between 5-10% of the purchase price of the home, FHA loans are available at a much lower down payment (as low as 3.5%)

  • Less challenging credit standards

For someone with a not-so-good credit history, it is a great relief to know that they are still eligible for home loans under the FHA program. FHA approval requirements are generally much less stringent as compared to conventional loans; allowing for more debt and thus a higher purchase price approval.  Furthermore, if the borrowers’ credit score is 580 or above they are eligible for maximum financing at just 3.5% down payment

  • Better interest rate

In the conventional loan applications, one of the major factors taken into account by lenders is your credit score and history. Both the loan amount eligibility and the interest rates charged are heavily dependent on this. However, in case of the FHA loans, interest rates are the same irrespective of credit and are nearly always highly competitive. 

  • Low Mortgage Insurance

Generally, the monthly mortgage insurance fee paid on an FHA loan is much lower as compared to the one paid on the conventional mortgage options. As a result, the overall monthly payment is much lower in case of the FHA loans

  • High Debt Ratios

Lower debt to income ratio are allowed under the guidelines of conventional loans. However, in case of FHA loans, one can qualify with a higher total monthly debt as compared to monthly gross income, leading to a higher purchase price approval.

In summary, when shopping for a home loan, going the FHA route is ideal if you want to avoid strict credit requirements that often come with other conventional mortgage options. However, before deciding on a FHA loan, be sure to have your mortgage professional weigh all the pros and cons of each loan program to assist you in making the right decision for your goals and scenario.

To see how much you could qualify for under FHA or any of our 70 different loan programs

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