If you’re thinking about purchasing or refinancing a home, it’s normal to feel intimidated by the various loan products on the market. At the Mortgage Minds Group, we’re here to demystify mortgages and help you make the best financial decision for your family. Today, we’ll discuss FHA loans—what an FHA loan is, who applies for one, and the benefits of choosing this type of mortgage.
What is an FHA Loan?
An FHA loan is a mortgage loan backed by the Federal Housing Administration (FHA) agency. As a government-backed loan, the FHA protects the lender of your mortgage if you default on it. As a result, the qualifications for FHA loans are less strict than those through private financial institutions (with no backing) enabling buyers with a less-than-ideal financial history to quality for a mortgage loan.
FHA loans are a popular choice for first-time home buyers who haven’t yet established a great credit history nor have significant funds saved up for a large down payment. However, as a result, they often experience higher interest rates and must pay for private mortgage insurance (PMI).
In addition to traditional mortgages, there are four other FHA loan types. A home equity conversion mortgage works as a reverse mortgage for homeowners over the age of 62. An energy efficient FHA mortgage provides an allotment of additional funds to pay for energy-efficient home updates, while a 203(k) mortgage can fund repairs or improvements of a wider variety. Finally, a section 245(a) FHA loan can be used to slowly increase monthly mortgage payments (GPM) or increase the monthly principal payments (GEM).
Federal Housing Administration Loan Program Benefits
580 minimum credit score
Lower minimum down payment (as low as 3.5% of purchase price)
Seller allowed to pay up to 6% of closing costs
Higher debt-to-income ratio
Flexible underwriting guidelines
Permits non-occupant co-borrowers
Various fixed or adjustable-rate options
Affordable PMI
FHA Home Loan FAQs
What is the difference between an FHA and a conventional loan?
FHA loans are backed by the US government, whereas conventional loans are not—they are managed by private financial institutions. Without the added federal security, banks, and lenders often have stricter standards in order to protect their assets. You can learn more about conventional loans here.
What does the Federal Housing Administration do?
The FHA is a government agency underneath the Department of Housing and Urban Development (HUD) that helps prospective buyers qualify for and purchase a home. Congress created the administration in 1934, and it continues to focus on making homeownership possible for as many as possible.
Are there limits to FHA loans?
Yes, the FHA releases updated loan limits each year. They vary based on location, but generally follow the real estate patterns of each location—more expensive areas usually have higher FHA loan limits. You can find the current limits on the FHA’s website, or simply talk to a loan officer for more information.
Learn More About Mortgage Loans
As experienced loan specialists, we help you navigate the home-buying process and make mortgages simpler. Whether you’re interested in FHA or some other loan product, we can provide the assistance you need to make the best financial decision for your family.
To get started, check out our blog, find out if you qualify for a loan, or contact us with any questions. Let us help you find—and finance—the home of your dreams.
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