FHA loans: What you need to know

An FHA loan can be described as a mortgage insured by the Federal Housing Administration. By only allowing a 3.5% down payment with a FICO 580, FHA loans are useful for buyers with limited savings or lower credit scores.

If you’re already sure that an FHA loan is right for you, or you’re still trying to find out what FHA is, we’ve broken it down. It is not necessary to read the FHA manual. Here you will find answers to all frequently asked questions about FHA.

What is an FHA loan?

An FHA loan describes as a mortgage insured by the Federal Housing Administration. With a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher, FHA loans are popular with first-time buyers with little savings or credit problems.

The FHA insures mortgages from lenders such as banks, credit unions, and non-banks. This insurance protects lenders in the event of default, which is why FHA lenders are willing to offer advantageous terms to borrowers who would not otherwise qualify for a home loan.

An FHA home loan can be used to buy or refinance single-family homes, apartment buildings of two to four residential units, condominiums, as well as some prefabricated homes and mobile homes. Certain types of FHA loans can also be used for new buildings or to renovate an existing house.

What is the main difference between an FHA loan and a conventional loan?

It is easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that is not insured or guaranteed by the federal government. FHA loans allow lower credit scores than traditional loans and, in some cases, lower monthly mortgage insurance payments. The FHA rules are more liberal when it comes to down payment gifts from family members, employers, or non-profit organizations. FHA loans include closing costs that are not required for traditional loans.

How to Qualify for an FHA Loan

You must meet a number of requirements to be eligible for an FHA loan. It is important to note that these are the minimum requirements for the FHA and that lenders may have additional requirements. Buy from more than one FHA approved lender and compare deals to make sure you get the best FHA mortgage rate and loan terms.

Credit Score

The minimum score of an FHA loan is 500. If your score is between 500 and 579, you may still be able to qualify for an FHA loan, but you will need to make a larger down payment.


If you have a credit score of 580 or higher, your FHA deposit can only be 3.5%. A credit score between 500 and 579 means that you must drop 10% of the purchase price.

The good news? Not everything has to come from savings. You can use the gift money for the FHA deposit, provided the donor sends a letter with contact details, relationship with you, amount of the gift, and a statement that no refunds are expected.

Debt-to-income ratio (DTI)

The FHA requires a DTI of less than 50, which means that your total monthly debt cannot exceed 50% of your pre-tax income. This includes debts that you are not actively paying. For deferred student loans, your FHA loan insurer will include 1% of the total loan as a monthly payment. For other types of loans that you are not currently paying, subscribers use 5% of the total loan to calculate their DTI.

Property permit

The property you want to buy with an FHA loan, whether it is a house, condominium, prefabricated house, or apartment building, must meet the minimum requirements of FHA real estate. The FHA requires a separate (and different from) assessment of a home inspection. You want to make sure that the house is a good investment, that it is worth it and that it meets safety and quality of life standards.

For an FHA 203 (k) loan, the property may be subject to two separate appraisals: an “as is” appraisal, which assesses its current condition, and an “after improvement” appraisal, which estimates the value at the end of the work.


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