FHA Loans

An FHA loan is a government-backed loan insured by the Federal Housing Administration.

row of homes

The Basics

The federal government backs FHA loans, so they have:


Relatively competitive interest rates


Less stringent underwriting standards


Require smaller down payments

The Benefits

They’re particularly appealing to young, first-time homebuyers who lack substantial credit histories and cash reserves, especially since loan underwriters permit non-traditional lines of credit, like insurance premiums and utility bills.

Down payments may be as low as 3.5 percent, gifted, and buyers don’t need financial reserves beyond immediate closing costs. Also, an applicant may co-sign with a non-occupant co‐borrower like a parent to offset many issues.

The Barriers

These loans are relatively easy to refinance and are relatively forgiving of bankruptcies and foreclosures. They simply require a two-year wait time following a discharge. However, be prepared for stricter appraisals, strict accounting of income, and lower loan limits. Also, FHA loans don’t work for investment and vacation homes and a spouse’s debts can work against you, even if the spouse doesn’t co‐sign.