What is a Federal Housing Administration Loan (FHA)?
An FHA Loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA Loans require a lower minimum down payments and credit scores than many conventional loans.
As of 2020, you can borrow up to 96.5% of the value of a home with an FHA Loan (meaning you’ll need to make a down payment of only 3.5%). You’ll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA Loan provided you can make a 10% down payment. With FHA Loans, your down payment can come from savings, a financial gift from a family member or a grant for down-payment assistance.
All these factors make FHA Loans popular with first-time homebuyers.
Key Points
FHA loans are federally backed mortgages designed for low-to-moderate-income borrowers who may have lower than average credit scores.
FHA loansrequire a lower minimum down payments and credit scores than many conventional loans.
FHA loansare issued by approved banks and lending institutions, who will evaluate your qualifications for the loan.
These loans come with certain restrictions and loan limits not found in conventional mortgages.
It’s important to note that the Federal Housing Administration doesn’t actually lend you money for a mortgage. Instead, you get a loan from an FHA-approved lender, like a bank, and the FHA guarantees the loan. Some people refer to it as an insured loan, for that reason.