Key facts
- FHA loans are insured by the Federal Housing Administration.
- They are designed for borrowers with lower credit scores or smaller down payments.
- Eligibility requires meeting specific credit score and debt-to-income ratio criteria.
- Down payments can be as low as 3.5%.
An FHA loan is a type of mortgage that is insured by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development. These loans are particularly beneficial for first-time homebuyers or those who may not qualify for conventional mortgages due to less-than-perfect credit scores or limited funds for a down payment. The FHA's insurance protects lenders against losses, making them more willing to offer favorable terms. Key requirements include a minimum credit score, typically around 580 for the lowest down payment, and a debt-to-income ratio that lenders deem manageable. The standard down payment is 3.5%, though borrowers with lower credit scores may face higher requirements or mortgage insurance premiums.