What Is an FHA Loan?
FHA loans are government-insured loans backed by the Federal Housing Authority. They are designed for low- to moderate-income earners and typically come with the lowest down payments.
For 2021, the FHA floor is set at $356,362 for single-family home loans. While this amount varies by county, this minimum lending amount covers 80% of all U.S. counties.
FHA Loan Qualifications
Because FHA loans are designed for lower-income earners, qualifying for this type of financing is easier than many other loan types. Higher debt-to-income ratios are allowed, and borrowers need only a 3.5 percent down payment. Borrowers can have as low as a 580 credit score and still qualify for an FHA loan.
Who Should Get an FHA Loan?
FHA loans are best for borrowers who:
- Are first-time homebuyers
- Have less than perfect credit
- Have little saved for a down payment
- Have high debt-to-income ratios
- Are receiving gift money for their down payment
Pros and Cons of FHA Loans
- Low down payment
- Competitive interest rates
- Higher debt-to-income ratios allowed
- Lower credit scores allowed
- Lower loan limits
- Mortgage insurance is required