9 FHA Home Loan Facts

The Federal Housing Administration, or FHA, offers home loans that can help you make repairs, tap into home equity and more.
Kate Wood
By Kate Wood 
Edited by Beth Buczynski

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FHA home loans provide a path to homeownership for borrowers with lower credit scores or limited cash for a down payment. Lenders are willing to take on these borrowers because the mortgage is insured by the Federal Housing Administration.

Get an idea of how the FHA could help you achieve your homeownership goals with this list of nine FHA home loan facts.

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» MORE: Basic FHA loan guidelines

1. FHA loans have more lenient qualification requirements

It's easier to qualify for an FHA loan than for a conventional mortgage. FHA loan rules make allowances for borrowers who might not have an extensive credit history or who need to use gift money to make a down payment, for example. Here are the basic requirements to apply for an FHA loan:

  • Credit score of 500 or higher.

  • Debt-to-income ratio of 50% or less.

  • 3.5% minimum down payment.

  • The home must meet the FHA's minimum property requirements and be your primary residence.

2. FHA home loans require mortgage insurance

FHA mortgage insurance is mandatory for all FHA loans. Unlike the private mortgage insurance paid by conventional borrowers who put down less than 20%, FHA mortgage insurance can't be canceled just because you gain sufficient equity.

If you make a down payment that's under 10%, FHA mortgage insurance lasts for the life of the loan. With a 10% (or higher) down payment, you'll pay FHA mortgage insurance for 11 years.

3. FHA loans can be used for different types of homes

FHA loans aren't just for single-family homes. Guidelines for buying FHA-approved condos recently broadened, and you can also use an FHA loan to purchase a multifamily home or a manufactured home.

No matter the type of home, in nearly all cases it has to be your primary residence. For example, if you use an FHA loan to purchase a duplex, you need to live in one of the units. Investment properties aren't eligible for FHA loans.

4. FHA loan terms may vary by lender

While the FHA sets minimum requirements, individual FHA lenders may have stricter standards. For example, a lender might set their minimum credit score for an FHA loan at 580 rather than 500.

Lenders determine their own rates and terms, so as with any loan application, it is always a good idea to shop around and compare loan offers.

Getting a mortgage preapproval from more than one lender will let you see the total cost of a loan, including FHA closing costs and other fees.

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5. FHA borrowers can get help avoiding foreclosure

If you aren't sure whether you'll be able to make your next FHA loan payment, or if you’ve already missed a payment, contact your lender directly to discuss your situation and options for avoiding foreclosure. Then, you can reach out to a HUD-approved financial counselor to get free advice about your next steps. These counselors can help you make informed decisions about the options your lender may offer, like forbearance or loan modification.

To find a counselor near you, check the HUD website. Click or tap the words "foreclosure avoidance counselor" in the introduction, then select your state to browse local counseling services.

6. An FHA loan can help after a disaster

Wildfires, floods, earthquakes, hurricanes, tornadoes and other natural disasters are becoming the new normal. If you are in a presidentially declared disaster zone, the FHA 203(h) Mortgage Insurance for Disaster Victims program can provide 100% financing for the purchase or reconstruction of a home severely damaged or destroyed in a disaster.

FHA 203(h) loans are only available for single-family homes or condos, and you need to apply within one year of the disaster declaration.

7. An FHA home loan can help you make repairs and upgrades

Buying a fixer-upper or want to renovate your current home? The FHA has several renovation loan programs that are geared toward home improvement:

  • FHA 203(k): Both standard and limited 203(k) loans let you roll the cost of renovations into your total mortgage amount. A HUD-approved consultant may be required to oversee work, and major structural repairs may not be eligible.

  • FHA 203(k) Refinance: Both the standard and limited 203(k) loans are offered as refinancing options for existing homeowners, too.

  • FHA Title I Loan: These fixed-rate loans allow borrowers to finance home improvements that protect or improve a home’s functionality. FHA Title I loans can also be used to purchase a manufactured home.

  • FHA Energy Efficient Mortgage: This loan finances upgrades to new or existing homes, so long as they'll help you save on utility bills once installed. The EEM can be used in conjunction with other FHA purchase or refinance loans.

8. There's an FHA reverse mortgage program

If you're 62 or older, live in your home and own it outright or have a low mortgage balance remaining, the FHA Home Equity Conversion Mortgage program is a way to tap into your equity.

Like other reverse mortgages, HECM allows homeowners to convert equity into cash without selling their home or taking on additional loan payments. To determine whether you're eligible and whether an FHA HECM is the right move for you, you'll have to meet with an HECM counselor.

9. FHA loans come with property requirements, too

As part of the home-buying process, your lender will have an FHA-approved appraiser check out your future home to be sure it meets the FHA's minimum property requirements. The FHA appraisal is separate from a home inspection.

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