FHA Loan Overview

Dated: February 8 2021

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FHA Loans


With a conventional loan you have to put down 20% of the loans value down upfront. That means for the average $250,000 home you would need to save up $50,000 for the downpayment and that's a lot of money. However, there are numberous alternatives to the conventional loan, which offer significantly lower downpayments. One of those alternatives is the US Federal Housing Administration mortgage insurance backed mortgage loan also known as a FHA loan. 

What is an FHA Loan?

A FHA loan is a mortgage product that is offered by FHA approved lenders and insured by the federal government. It was created to assist low to moderate income individuals purchase a home and is a really great mortgage option for first time homeowners. 

What are an FHA Loan's Benefits?

Because these loan are insured by the federal goverment lenders are able to offer better loan terms. For example with an FHA loan you can put as little 3.5% down on your home.  For a $250,000 home that would only be $8750. With conventional loans sellers can only pay up to 3% of closing costs, but with an FHA loan sellers can pay up to 6%. Additionally, many other loan options require a credit score of 620 or above, but with an FHA loan your score can be as little as 500. 

What are the Eligibility Requirements for an FHA Loan?

To be eligible for an FHA loan you must have a credit score above 580 for a 3.5% downpayment or a score between 500 to 579 for a 10% downpayment. Additionally, your income to debt ratio must be less than 43% and there is no income cap on these loans. However, there is a loan value cap, but the cap amount varies by zipcode and county. To find out this loan limit check with you local FHA office.

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