What is an FHA Home Loan?

FHA home loans are insured by the Federal Housing Administration (FHA), and can only be provided by lenders approved by the FHA. This type of mortgage has a fixed term length of either 15 or 30 years. It’s a popular choice among first-time homebuyers, as well as buyers with limited savings or lower credit scores.

When purchasing a home, you might be responsible for certain out-of-pocket expenses like loan origination fees, appraisal costs, and attorney fees. One of the advantages of an FHA home loan is that the seller, home builder, or lender can cover some of these closing costs on your behalf.

The minimum down payment (3.5%) and credit score requirements (at least 580) of FHA loans are lower than that of many conventional loans. And unlike conventional mortgages, 100% of your down payment can be a gift. This gift can come from any of the following:

• The borrower’s relative.
• An employer or labor union.
• A close friend.
• A charitable organization.
• A governmental agency or public entity that has a program providing home ownership assistance.

If your credit score is between 500 and 579, you still can qualify for this kind of loan; however, you’ll have to make a larger down payment.

Generally speaking, the lower your credit score and down payment, the higher the interest rate you’ll pay on the mortgage.