What is a Federal Housing Administration (FHA) Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans are provided by FHA-approved lenders. This is for the FHA’s traditional mortgage. The FHA does offer other loans for particular circumstances.
Loan Scenario for an FHA Loan
FHA loans are ideal for borrowers with small down payments and low credit scores. FHA loans can be a good fit for a first-time home purchase, and those in a situation where purchasing a home is balanced against having damaged or poor credit.
Pros of an FHA Loan
Here are the advantages of a FHA mortgage:
- Can get a loan with a down payment that is 3.5% of the home’s value
- Can qualify with a credit score of 500 (with a minimum ten percent down payment)
- Can qualify with 580 credit score and a 3.5% down payment
- Often has lower interest rates than conventional loans
Challenges of an FHA Loan
- An FHA loan’s maximum amount is currently set at $314,827
- The FHA approval process can be more time-consuming and stringent, which can be a negative to some sellers
- If your down-payment is below the FHA threshold for private mortgage insurance (PMI), current borrowers will pay PMI for the life of the loan
- FHA appraisals are more thorough and can sometimes cause additional issues between the buyer and seller
- FHA does not lend investment on properties
Looking for an FHA loan for a home purchase or to refinance an existing mortgage? Fill out the form and we will be back in touch to discuss your options.
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