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Is an FHA Loan Right For You?

3-minute read
January 22, 2021

Not sure what the difference is between FHA and conventional loans?  While understanding the various loan products can be confusing for a first-time homebuyer, they often make the difference between being able to purchase a house or not.

An FHA loan is different from a conventional loan in significant ways. Working with an independent mortgage broker and having a cursory understanding of those differences will be a big help for your home (and financial) planning.

Let's break down the pros and cons of going FHA, so you can decide which loan makes the most sense for your unique homebuying situation with your independent mortgage broker.

What is an FHA loan?

An FHA loan is a mortgage that's insured by the Federal Housing Administration, a government agency that was created to make home ownership more affordable. This means that wholesale lenders, banks and credit unions are protected in case the borrower defaults on the loan.

How FHA Loans are Different from Conventional Loans

FHA lending guidelines only require a minimum 3.5% down payment for borrowers and a credit score of 580 or higher, making them popular with many first-time home buyers. For these reasons, it can be much easier to qualify for an FHA loan than a conventional loan. However, every FHA loan also carries FHA mortgage insurance, which can make your monthly mortgage payment higher. FHA loans also have fewer rules about using gifts of money from family, employers or charities as part of your down payment. (For more differences, see the "How to choose which is right for you" section below.)

How to Qualify for an FHA Loan

Here are the minimum loan requirements you'll need to satisfy under FHA lending guidelines:

A credit score of at least 500

How to apply for an FHA loan

When you work with an independent mortgage broker, they will walk you through the FHA loan process and requirements. Here are some of the documents you'll need to get started:

How to Choose the Right Loan for You

Your mortgage broker will help you decide if an FHA loan is the best decision for your financial goals and current situation. When you get pre-approved, they will walk you through the down payment, interest rate, and associated closing costs to help you make an informed decision. However, it's up to you on whether an FHA or conventional loan best suits your needs. Here's a helpful "pros and cons" breakdown of FHA loans:

Pros of FHA loans:

Cons of FHA loans:

The Bottom Line: Be Honest with Your Future Goals

If the thought of paying mortgage insurance for the entire life of a loan is simply too upsetting to contemplate, then a conventional loan might be the way to go. However, if your credit score or modest savings means FHA is the only way you can own a home, then FHA may be your best option. A little careful consideration now is your best chance for a happy future as a homeowner.

If you're ready to purchase a home, get started by finding a local mortgage broker in your area who can help you from pre-approval to closing.