FHA Loans

An FHA mortgage loan is insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers. FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment.

Who They're For?

  • People whose house payments will be a big chunk of take-home pay.
  • Borrowers with low credit scores or previous short sales and foreclosures
  • Home buyers with small down payments and refinances with little equity

How They Work

The Federal Housing Administration does not lend money. It insures mortgages.

The FHA borrowers to spend up to 56% of their Income on monthly debt obligation, such as mortgage, credit cards student loans and car loans. In contrast, conventional mortgage guidelines tend to cap debt-to-income ratios at around 45% and sometimes less.

For many FHA borrowers, the minimum down payment is 3.5%. Borrowers can qualify for FHA loans with credit scores low as 620.

Pros And Cons

What’s good: FHA loans are often the only option for borrowers with high debt-to-income ratios and low credit scores.

What’s not as good: FHA mortgage insurance premiums usually are higher than premiums for private mortgage insurance. To get rid of FHA premiums, you must refinance the loan.