An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency under the U.S. Department of Housing and Urban Development (HUD). This type of loan is issued by FHA-approved lenders, such as banks or mortgage companies, but insured by the government to protect lenders against losses if the borrower defaults

Key Features of an FHA Loan:

• Lower Down Payment: Borrowers can put down as little as 3.5% if their credit score is 580 or higher. Those with credit scores between 500 and 579 may still qualify but must put down at least 10%

• Credit Flexibility: FHA loans are designed for borrowers who might have lower credit scores or limited savings, making them popular with first-time homebuyers and those with imperfect credit

• Mortgage Insurance: Borrowers must pay mortgage insurance premiums (MIP), including an upfront fee and monthly payments, which protect the lender. This insurance is required regardless of down payment size and can add to the overall loan cost

• Owner-Occupancy Requirement: The home purchased with an FHA loan must be the borrower's primary residence for at least one year; these loans cannot be used for investment or vacation properties

• Loan Limits: FHA loans have maximum loan amounts that vary by location, and the loan-to-value ratio typically cannot exceed 96.5% for borrowers with higher credit scores

Purpose and Benefits:

FHA loans aim to help low- to moderate-income families and individuals who might otherwise struggle to qualify for conventional mortgages due to credit or down payment constraints. The government insurance reduces lender risk, making it easier for these borrowers to obtain financing

Summary:

An FHA loan is a government-backed mortgage that offers more accessible financing options with lower credit score and down payment requirements, backed by mortgage insurance to protect lenders. It is especially beneficial for first-time homebuyers or those with limited savings or credit challenges