If you need help finding a good mortgage broker that offers an FHA loan, fill out this form here.
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration and it’s designed to help more people become homeowners by being more flexible with credit, down payment, and income requirements than conventional loans.
It’s especially popular with first-time buyers, people rebuilding credit, or anyone who doesn’t have a huge down payment saved up, and because the government insures the loan, lenders are more willing to say yes to borrowers who might be a little outside the box.
You can buy a home with as little as 3.5 percent down if your credit score is 580 or higher, and technically FHA allows you to go all the way down to a 500 score if you can put at least 10 percent down.
Not many lenders are willing to go that low, so in practice you’ll want at least a 580.
FHA loans also allow the entire down payment to come from a gift or down payment assistance, which makes it much easier to get into a home with limited cash.
You can even get help with closing costs from the seller, up to 6 percent of the purchase price, which is more generous than conventional.
FHA loans come with mortgage insurance, and unlike conventional loans where it can fall off after 20 percent equity, FHA mortgage insurance is permanent if you put less than 10 percent down.
You pay an upfront mortgage insurance premium of 1.75 percent of the loan amount, which is usually rolled into the loan itself, and then a monthly premium based on your loan size and term.
Let that sink in.
You get charged up front (rolled into the loan) and you get charged monthly.
If you put at least 10 percent down, the monthly mortgage insurance drops off after 11 years, otherwise it stays for the life of the loan unless you refinance into something else later on.
FHA loans are much more forgiving when it comes to credit history. You can get approved with past late payments, collections, or even a recent bankruptcy or foreclosure, as long as enough time has passed and you’ve shown a good pattern since.
A Chapter 7 bankruptcy needs to be discharged for at least two years, and a foreclosure needs to be at least three years old, but those timelines can be flexible with extenuating circumstances.
That’s a big reason why people choose FHA over conventional when they’ve had past credit issues.
Chapter 13 bankruptcy just needs 12 on-time payments. With court approval you could get a mortgage WHILE IN the chapter 13 repayment period. You don't have to wait for a discharge date with a Chapter 13 bankruptcy.
This is just a piece of a developing library of tools, guides, and other resources for first time homebuyers. Here's the full library
If you need help finding a good mortgage broker that offers an FHA loan, fill out this form here.
Debt-to-income ratio is another area where FHA is flexible.
The maximum allowable is 46.99% on the front end ratio, and 56.99% on the backend ratio.
I need to quickly explain the difference between a front end ratio and a back end.
Front end is the housing payment (mortgage payment + HOA) divided by the income.
Example: $3k mortgage with $10k income = 30% front end ratio
Back end is the mortgage + all other debts on credit.
Same example, but say you have an auto loan for $200 per month.
Mortgage $3k + $200 = $3,200 total debt divided by $10k monthly income = 32% backend ratio.
Remember: These are maximum ratios. Lenders don't like you pushing those limits, and you may still get denied based on other detracting factors.
Here's a debt to income ratio calculator: https://integritylending.tools/qualifier
You can use FHA loans to buy single-family homes, townhomes, condos in approved projects, and even 2 to 4 unit properties if you’re going to live in one of the units.
That can be a way to house hack and use rental income to qualify.
There’s also an FHA 203(k) program if you’re buying a fixer and want to finance repairs into the loan, although that comes with more paperwork, extra steps, and often a slower timeline to close. Here's the guide on that: https://www.reddit.com/r/NewbHomebuyer/comments/1j3g0nf/financing_a_fixer_upper/
FHA loans require the home to meet minimum property standards and that gets evaluated during the appraisal.
Peeling paint, missing handrails, broken windows, roof issues, anything that affects safety or livability could be flagged, and the seller may need to make repairs before closing.
It’s not as strict as people think, but it’s more involved than conventional where cosmetic issues are often overlooked.
Loan limits are another thing to watch. FHA has limits based on your county and number of units, and they’re usually lower than conventional conforming limits. Check loan limits here: https://www.fha.com/lending_limits
You can also use FHA to refinance, either with a rate and term refi or the FHA streamline refinance if you already have an FHA loan.
The streamline refi is one of the easiest options out there.
It doesn’t require income documentation or a new appraisal in most cases, just a clean mortgage history and a tangible benefit like a lower rate or monthly payment.
It’s one of the few ways to drop your rate quickly without a ton of paperwork.
So while FHA loans might not be the cheapest long-term option because of the permanent mortgage insurance, they’re one of the most flexible and forgiving tools for getting into a home, especially if your credit isn’t perfect, your income is tight, or you need help covering the down payment and closing costs.
For getting in the door, FHA opens it wider than just about anything else.
If you need help finding a good mortgage broker that offers an FHA loan, fill out this form here.