FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders like banks and credit unions offer FHA loans with a lower down payment requirement, allowing buyers to purchase a home with as little as 3.5% down.

In contrast, conventional loans with a lower down payment typically require the borrower to obtain private mortgage insurance (PMI). This insurance protects the lender if the borrower cannot make payments. The cost of PMI is added to the monthly mortgage payment until the loan’s principal reaches 20%. However, FHA loans do not require PMI, as they are backed by the government. Applicants may face additional scrutiny during the loan approval process when applying for an FHA loan.

For those applying for an FHA loan many of the same documents are required as with any other mortgage: employment history, property appraisal, and debt-to-income ratio. However, FHA loans come with a few additional requirements. Buyers typically need to provide a down payment of 3.5% of the purchase price, although this percentage may be higher if their credit score is below 580. It’s important to note that FHA loans are only available for the borrower’s primary residence.

The credit requirements for FHA loans can be more lenient, as lenders may consider other factors that demonstrate responsible money management. Each lender reviews applications individually and may request additional documentation or explanations. This flexibility often allows lenders to work with buyers who have a lower credit score or shorter credit history compared to other loan options.

FHA loans allow you to purchase a home with a down payment as low as 3.5%, much lower than the typical 20% required for most other loans. You can choose from a variety of fixed-rate terms, including 30-, 25-, 20-, and 15-year options, or opt for a 5-year adjustable rate mortgage. Additionally, FHA loans offer the flexibility to pay off your mortgage at any time without facing pre-payment penalties.