What is an FHA Loan?

 

House in Hollywood, FL
Older house in East Hollywood neighborhood in Hollywood, FL

An FHA loan is a home loan, that is insured by the Federal Housing Administration (FHA). Loans are made by FHA-approved lenders.

FHA loans are very popular among first time home buyers, because they require a smaller a down payment and lower closing costs.

FHA loans allow a down payment of as little as 3.5% on a mortgage, with the credit score is 580 points and above. This can make it possible for lower- and middle-income borrowes to buy a house. But the buyer has to pay mortgage insurance.

The FHA mortgage insurance provides safety to the lenders lenders, just in case mortgage borrowers fail to pay the mortgage. The borrowers has to pay insurance premiums.

Just remember, that the lower credit score, the higher interest rate for the mortgage will be.