Federal Housing Administration (FHA) Loan: Requirements, Limits, How to Qualify

Federal Housing Administration (FHA) Loan:

A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other lender that is approved by the agency. FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than is usually required.

The FHA loan is designed to help low- to moderate-income families attain homeownership. They are particularly popular with first-time homebuyers.


  • FHA loans are mortgages intended for certain borrowers who find it difficult to obtain loans from private lenders.
  • The federal government insures FHA loans.
  • FHA borrowers must pay two types of mortgage insurance premiums (MIPs)—one upfront and the other annual, but paid monthly.
  • Because they are insured, banks are more willing to loan money to homebuyers with relatively low credit scores and little cash to put down on the purchase.
  • First-time homebuyers may find that an FHA loan is the most affordable mortgage option.

    How Does an FHA Loan Work?

    If you have a credit score of at least 580, you can borrow up to 96.5% of the value of a home with an FHA loan, as of 2022. That means the required down payment is only 3.5%.2

    If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.3

    He Bank’s Role in an FHA Loan:

    The FHA doesn’t actually lend anyone money for a mortgage. The loan is issued by a bank or other financial institution that is approved by the FHA.

    The FHA guarantees the loan. That makes it easier to get bank approval since the bank isn’t bearing the default risk. Some people refer to it as an FHA-insured loan for that reason.

    Borrowers who qualify for an FHA loan are required to purchase mortgag

    Types of FHA Loans:

    In addition to traditional mortgages, the FHA offers several other home loan types.

    Home Equity Conversion Mortgage (HECM):

    This is a reverse mortgage program that helps seniors ages 62 and older convert the equity in their homes to cash while retaining the home’s title. The homeowner can withdraw the funds in a fixed monthly amount, a line of credit, or a combination of both.7

    FHA 203(k) Improvement Loan:

    This loan factors the cost of certain repairs and renovations into the amount borrowed. It’s great for those willing to buy a fixer-upper and put some sweat equity into their home.

    FHA Energy Efficient Mortgage:

    This program is similar to the FHA 203(k) improvement loan program, but it’s focused on upgrades that can lower your utility bills, such as new insulation or solar or wind energy systems.

    e insurance, with the premium payments going to the FHA.

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