What is an FHA Loan?
There are various types of loans to choose from when buying a home, each with unique qualification requirements and terms. An FHA loan is a mortgage that is backed by the government through the Federal Housing Administration (FHA). The FHA insures approved lenders against risks associated with borrowers defaulting on their loans. Borrowers pay a Mortgage Insurance Premium (MIP) throughout the life of the loan to protect against these losses.
The FHA’s backing allows lenders to offer more flexible qualification requirements than traditional loans, including lower credit scores and down payment amounts as low as 3.5% of the home’s value. This makes FHA loans a popular choice for first-time homebuyers who may have less established credit histories or savings for a down payment.