What is an FHA loan?
FHA home loans are mortgage loans insured against lender losses by the Federal Housing Administration. FHA does not make the mortgage or set its interest rate; approved lenders originate the loan. Eligible single-family financing can cover one- to four-unit primary residences, subject to program requirements.
How the program began
The Federal Housing Administration was established in 1934 to improve housing standards and expand access to home financing through mortgage insurance. Its insurance protects participating lenders against eligible losses if a borrower defaults.
What does an FHA loan offer?
- Buy an eligible home with as little as 3.5% down when the borrower meets the applicable credit requirements.
- A financing path for first-time homebuyers who cannot make a large down payment. Repeat buyers may also qualify.
- An option for eligible borrowers whose credit profile does not fit a conventional program.
- Compatible down-payment assistance may help with down payment and/or closing costs, subject to the assistance program and lender’s rules.
FHA versus conventional loans
FHA and conventional mortgages use different eligibility and mortgage-insurance requirements. FHA can offer flexibility for limited credit history or past credit issues. Lenders may require explanations and supporting documents for derogatory credit, and waiting periods apply after events such as bankruptcy or foreclosure.
Conventional loans also offer low-down-payment options for qualified borrowers, so FHA is not always the lowest-down-payment or lowest-cost choice. Compare the full payment, interest rate, mortgage insurance, fees and long-term cost.
FHA mortgage insurance is generally required. Income, credit, occupancy, property condition, loan limits and lender requirements still apply. Past bankruptcy does not create automatic eligibility after a single universal waiting period.
