An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency under the U.S. Department of Housing and Urban Development (HUD). It is issued by FHA-approved private lenders such as banks. The FHA does not lend money directly but guarantees the loan, which reduces the risk for lenders and makes it easier for borrowers to qualify
. Key features of an FHA loan include:
- Lower down payment requirements: Borrowers with credit scores of 580 or higher can put down as little as 3.5% of the home's purchase price. Those with credit scores between 500 and 579 typically need a 10% down payment
- More flexible credit requirements: FHA loans are designed for borrowers who might have lower credit scores or financial challenges that make conventional loans harder to obtain
- Mortgage insurance premiums (MIP): Borrowers must pay an upfront mortgage insurance premium (usually 1.75% of the loan amount) plus ongoing monthly premiums to protect lenders against default risk
- Use for primary residences: FHA loans are intended for owner-occupied homes and require the borrower to live in the property for at least one year
- Loan limits vary by location, typically ranging from about $524,000 to over $1.2 million for single-family homes depending on the area
FHA loans are especially popular with first-time homebuyers and those with limited savings or credit history, as they provide a more accessible path to homeownership
. In summary, an FHA loan is a government-backed mortgage that offers lower down payments and more lenient credit standards, insured by the FHA to encourage lenders to provide loans to borrowers who might otherwise struggle to qualify
