What is an FHA (Federal Housing Administration) Loan?

FHA Loans

Summary: FHA loans are loans backed by the Federal Housing Administration. They are designed to expand homeownership eligibility and to help borrowers with low credit scores become homeowners. FHA loans allow homebuyers to qualify for a home with a lower credit score and low down payments.

FHA loans are another common loan type available to homebuyers. They are backed by the Federal Housing Administration (FHA) who set the guidelines for the loan. Approved banks and mortgage lenders fund the housing loan.

Credit Scores and MIP (Mortgage Insurance Premium)
Borrowers looking into FHA mortgage rates can qualify for the loan with credit scores as low as 580 and with minimum down payments of 3.5%. The range of accepted credit scores depends on the mortgage lender you are working with.

Due to the low down payment options, borrowers pay two different types of Mortgage Insurance Premiums (MIPs): one is due at closing and the other is paid monthly.


  • A debt-to-income ratio (DTI) of 43% or lower
    • DTI ratio is capped at 57%
  • Two years of employment verification
  • Appraisal meeting certain FHA minimum standards, such as:
    • No chipped and peeling paint
    • No cracks in the driveway
    • Stairs with handrails.
    • No safety hazards such as mold
  • Homes need to have access to crawl spaces and attics
  • A home inspection
  • Property needs to be a primary residence
    • FHA loans are not eligible for investment properties
  • Buyers must reside in the property within 60 days

Different mortgage lenders have different variations and additional requirements to the ones listed above. To confirm if an FHA loan is right for you, contact your mortgage lender to discuss your options.

FHA Housing Loan Process
Below are the steps a buyer may come across when purchasing a home with an FHA loan:

  1. Contact Your Mortgage Broker
    • The Home Loan Advisor will look at your credit score and map out your loan process.
  2. Get Pre-Approved
    • A pre-approval estimates the loan amount, terms, and loan type available to the borrower.
    • Borrowers can narrow their home search to homes they qualify for by using the information on the pre-approval letter.
  3. Start Home Shopping!
    • Use your pre-approval to home search.
  4. Make an Offer
  5. Get an Appraisal
    • Have your potential home evaluated for its value.
  6. Get a Home Inspection
    • The home inspection will highlight damages or safety concerns that need to be addressed before the purchase.
  7. Go Through Underwriting
    • All information needs to be verified and approved by the underwriter.
  8. Close on Your Home!
    • Once all documents have been received and approved, it is time to schedule your closing.

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