If you’re in the home buying market, you’ve likely heard the phrase “FHA loans” floating around. But, what is an FHA loan? And, is everyone eligible?
In the simplest terms, a FHA loan is a home loan backed by the Federal Housing Administration.
What it means: The mortgage is insured by a government agency (part of the U.S. Department of Housing and Urban Development); the FHA protects the lender if the borrower cannot pay the loan and then defaults.
Since its inception in 1934, the FHA and HUD have insured over 34 million home mortgages, according to the U.S. Department of Housing and Urban Development.
Interested in the flexibility FHA loans provide? Quizzle can help you explore your mortgage options.
Three Huge Benefits
- Low Down Payments: FHA loans are attractive for many reasons, one of which is the low down payment requirements. Unlike traditional mortgages that recommend or require at least 10 percent of the purchase price for a down payment, FHA loans only require 3.5 percent.
- Easy To Qualify For: Qualifying for an FHA loan doesn’t require a perfect credit score. While most FHA loans are approved of based off a score of 560 or above, you can be approved with a score as low as 500. And the affordability of FHA loans is likely to stay around; earlier this year, HUD Secretary Julian Castro stated, “We’re not changing who qualifies for an FHA loan.”
- 203(k) Loans: Another benefit of FHA loans is the option to receive a 203(k) loan product. This loan is issued based on the appraisal of the house value for the purpose of home repairs.
Keep This In Mind, Though
- Varying Interest Rates: FHA loans are provided through FHA-approved lenders – the FHA does not function as the loan lender, but as an insurer. Because of this, it is important to still shop around for lenders, just as you would for any other mortgage.
The interest rate you are offered from one FHA-approved lender may not be the same as it would be from another lender. It is worth the time and effort to consider various offers before making a decision.
- Two-Part Premiums: All FHA loans involve two mortgage insurance premiums, one that is paid up front and the other that is paid monthly. The premium amounts are defined by the amount borrowed, the LTV (loan-to-value ratio) and the loan’s length.
- Not All Homes Qualify: The FHA has a minimum property standard on all homes the agency insures. According to HUD, there are three broad criteria for FHA property approval: safety, security and soundness. All three criteria must be met at a minimum standard before the FHA will approve qualification.
Amy Fontinelle, financial expert and contributor for Investopedia, Forbes, and Bankrate among other reputable sites, elaborated, “FHA loans make it easier for borrowers to qualify for a mortgage, but they don’t necessarily make it easier to buy a property.” 
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The bottom line regarding FHA loans is they are available to assist home buyers and sellers alike through government backed insurance. Before making any substantial financial decisions, it is always best to (1) know your financial situation and credit report, (2) conduct research on your own and (3) solicit advice from professional advisors when necessary.