What Is An FHA Loan?

FHA loan
An FHA loan may be a great option for first-time homebuyers.

For many Americans, high home prices and rising mortgage interest rates have put the dream of home ownership out of reach. If you feel like you are in this boat, then this article is for you. Fortunately, an FHA loan may be a great option for you. An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). The FHA is a government agency that was created in 1934 to help Americans become homeowners. FHA loans are available to borrowers with lower credit scores and smaller down payments than conventional loans.

Benefits of an FHA loan

  • Low down payment requirements: You can obtain an FHA loan with as little as a 3.5% down payment. (Conventional loans will require larger down payments.)
  • Allow more flexible credit score requirements: You may be able to qualify for an FHA loan with a credit score as low as 500. (Most conventional loans will require a score of 620 or higher.)
  • More lenient debt-to-income ratio: You may be able to qualify for an FHA loan with a debt-to-income ratio of up to 50%, while most conventional loans require a debt-to-income ratio of 36% or lower.
  • Allows down payment assistance: Down payment assistance is allowed with an FHA pre-approval letter.
  • Seller contributions are allowed: The FHA allows contributions of up to 6% of the purchase price from sellers. Closing costs typically are lower than that, so you could use any money left over to buy down your rate and reduce your interest payments.
  • Co-signers and co-borrowers are permitted: In the event that you need additional income to help with the purchase, a family member or friend can become a co-signer or a co-borrower.
  • Buying a multi-family home is allowed: The FHA allows you to buy a multi-family home with up to four units and you are still only required to have a 3.5% down payment. Furthermore, you can use rental income from the other units to qualify for the mortgage. In addition, loan limits are typically higher for multi-family homes.
  • No pre-payment penalties: In the event that you want to refinance or sell the home, you aren’t penalized for ending the contract or paying the mortgage early.


FHA loans may be a great option if you are a first-time home buyer or if you are struggling to save for a down payment on a home. Of course, there are some stipulations with an FHA loan. For example, the property that you are purchasing must meet certain standards. In addition, you will need to pay for property mortgage insurance (PMI). As always, it is recommended to consult your mortgage broker along with you real estate agent for your best approach to a home purchase.

Are you looking to buy a property in South Florida? Contact Natasha at Live South Florida Realty, Inc.! Also, make sure you download the free Florida Home Search app for your mobile device.

By natasha moore

REALTOR® with Live South Florida Realty, Inc.