FHA Loan
A government-backed mortgage insured by the Federal Housing Administration, with low down payment requirements.
What is FHA Loan?
An FHA loan is a residential mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). FHA insurance protects lenders against borrower default, allowing them to offer loans with more flexible qualification standards than conventional mortgages. Key advantages include a minimum down payment of 3.5% for borrowers with credit scores of 580 or higher, and eligibility for borrowers with scores as low as 500 with a 10% down payment. All FHA borrowers must pay an upfront mortgage insurance premium (typically 1.75% of the loan amount) plus ongoing annual mortgage insurance premiums, which remain for the life of the loan on most FHA loans. FHA loans are available through FHA-approved lenders nationwide and are subject to loan limits set by county.
Example
A first-time homebuyer with a 620 credit score and $15,000 saved takes out an FHA loan to purchase a $250,000 home. The required 3.5% down payment is $8,750, well within reach. A conventional loan would have required 5–20% down and a higher credit score to obtain a comparable rate.
Source: HUD — FHA Loans