What is it?
A Federal Housing Administration (FHA) loan is a mortgage loan that’s insured or guaranteed by the federal government, through the FHA.
Advantages of an FHA loan
- Requires a smaller downpayment--sometimes as little as 3.5 percent.
- Other requirements, like credit score and debt to income ratios, are usually more flexible than they are for a conventional loan.
- It's typically easier to refinance a traditional loan
- There are no pre-payment penalties
Disadvantages of an FHA loan
- You'll pay mortgage insurance both upfront and on an annual basis
- There's a limit on the amount of money you can borrow, which may fall short of average home prices depending on where you live
Is it right for you?
FHA loans are a good option for people who:
- don't have 20 percent for a down payment
- have a credit score of 580 or above