An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA), which is a government agency within the U.S. Department of Housing and Urban Development (HUD).

FHA loans are designed to help homebuyers who may not qualify for a conventional mortgage, typically due to a lower credit score or a smaller down payment. FHA loans often require a down payment of only 3.5% of the purchase price, compared to the typical 20% required by most conventional lenders.

Offers more flexible underwriting than conventional loan

An FHA loan is insured by the Federal Housing Administration, which means that lenders’ risks are reduced. This type of loan requires lower down payments and also allows for lower credit scores. Currently, with an FHA loan, eligible borrowers with a credit score of 580 or more can put down as little as 3.5% of the purchase price.

An FHA loan does require mortgage insurance, which results in both an upfront cost and a monthly cost. It also requires that the property be appraised by an FHA-approved appraiser. A buyer may still purchase a home if the purchase price is greater than the appraisal by paying the difference in cash.