What is an FHA Loan?

An FHA loan is a loan backed by the Federal Housing Administration. The FHA program started in the 1930s during the Great Depression when the rate of foreclosures was quickly rising.

FHA loans are typically more popular with first-time homebuyers, but really, they are available to anyone who qualifies! You can only have one FHA loan at a time. If you have an FHA loan on your current home and are wanting to get an FHA loan on your new home, it is possible! You just have to sell your current home before closing on your new home. No, you don’t have to be homeless in between, you can close on both properties on the same day. If the loans don’t overlap, you are good!

There are several benefits to choosing an FHA loan. FHA loans allow you to have down to a 600 credit score. FHA also has a little more flexibility with the debt to income (DTI) ratio and allows you to have a higher DTI than a conventional loan. FHA also only requires a down payment of 3.5% of the property’s purchase price.

An FHA loan does require the buyer to pay a two-part mortgage insurance. There is a one-time upfront payment, that can be rolled into your loan, and monthly payments that are included in your loan payment. Since the lender is allowing a lower debt to income ratio, small down payment, and lower credit score, mortgage insurance compensates for the increased risk to the lender. Unlike a conventional loan, the amount you pay in mortgage insurance is not based on credit or DTI. If you have a 3.5% down payment your mortgage insurance is based on a standard formula across the board.