FHA Loans | Progressive Lending

How to decide if an FHA loan is right for you

Choosing an FHA loan depends on your specific financial situation.

An FHA loan is a good fit if you:

Have a low or fair credit score and are unable to meet the higher credit requirements for a conventional loan.
Don't have enough savings for a large down payment.
Have a higher debt-to-income ratio.
Plan to refinance into a conventional loan later, once you have more equity.

A conventional loan may be better if you:

Have excellent credit and can afford a 20% down payment to avoid mortgage insurance entirely.
Can afford at least 10% down to secure more favorable terms than a low-down-payment FHA loan.
Are interested in purchasing an investment property or a second home.
Are buying a property that might not meet FHA's strict health and safety standards.

*These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a refinance loan might result in higher finance charges over the life of the loan.

Maybe an FHA Loan?

FHA loans are an attractive option for first-time homebuyers and individuals with lower credit scores or limited savings for a down payment. The Federal Housing Administration (FHA) insures these loans, which reduces the risk for lenders and allows them to offer more lenient qualification requirements than conventional mortgages.

Key benefits of choosing an FHA loan

Low minimum down payment: You may be able to secure a home with a down payment as low as 3.5% if your credit score is 580 or higher. This is significantly lower than the typical 5–20% down payment required for conventional loans.
Flexible credit score requirements: FHA loans are known for being more forgiving of past credit issues. While lenders may have their own guidelines, the FHA minimum credit score is 580 for a 3.5% down payment, and some borrowers with a score between 500 and 579 may still qualify by making a 10% down payment.
Allows for higher debt-to-income (DTI) ratio: FHA lenders may approve higher DTI ratios than conventional lenders, which is beneficial for borrowers with existing debt, such as student or car loans.
Down payment assistance and gift funds: FHA loans permit borrowers to use gift funds from family, friends, or approved down payment assistance programs for the down payment.
Competitive interest rates: Because FHA loans are government-insured, lenders face less risk and can offer interest rates that are competitive with, and sometimes lower than, conventional loans.
Assumable loan: An FHA loan can be assumed by a new buyer if you sell your home, which may be an appealing feature in a rising interest rate market.

Potential drawbacks of an FHA loan

Mandatory mortgage insurance premiums (MIP): All FHA loans require both an upfront MIP (1.75% of the loan amount) and an annual MIP. Unlike private mortgage insurance (PMI) on conventional loans, the annual MIP is permanent for the life of the loan if your down payment is less than 10%.
Strict property requirements: Homes financed with an FHA loan must meet minimum health and safety standards during an FHA appraisal. This could mean required repairs and longer closing times, which might make a seller prefer a conventional offer in a competitive market.
Lower loan limits: FHA loans have limits on the amount you can borrow, which are generally lower than conventional loan limits. This can affect your purchasing power in high-cost areas.
Primary residence requirement: You can only use an FHA loan to purchase a primary residence. It cannot be used for a vacation home or an investment property.