What is an FHA loan, And How Can I Qualify?

David Thackham January 8, 2021 | 5 min read
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Everything you need to know about FHA loans, FHA home loan requirements, and whether this option is right for you

The house-buying process can seem overwhelming. Not only is it about finding the right house, but also the right home loan. Between conventional loans, jumbo loans, conforming, non-conforming, VA loans, and more, the choices can seem daunting.

An FHA loan is an ideal option for borrowers of all kinds, especially those who have a lower credit score or haven’t saved up a huge down payment.

Here’s a deep dive into understanding FHA loans, how you can qualify for one, and whether this loan type could be the right choice for you.
FHA Loan

What is an FHA loan?

An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). Being insured by the FHA means that the lender is protected against loss should the borrower default on the loan.

FHA loans are generally more lenient than conventional loans or other loan types when it comes to credit, income, and down payment requirements, so it can be easier to qualify for one.

An FHA loan is an ideal option for borrowers of all kinds, especially those who have a lower credit score or haven’t saved up a huge down payment

Because lower down payments and credit scores are accepted, FHA loans often appeal to first-time home buyers. In fact, FHA loans were originally designed to make homeownership more accessible and affordable for first-time buyers with less-than-perfect credit or past credit issues back in the 1930s.

Today, however, the FHA loan program is available to all kinds of borrowers, even those looking to refinance their current loan.

What are the benefits of an FHA loan?

As we mentioned earlier, one big benefit for borrowers is that it can be easier to qualify for an FHA loan given the looser down payment and credit requirements. You may qualify if you have debt or even other financial issues like a bankruptcy on your record.

Both fixed and adjustable-rate FHA loans are available, depending on the size of your down payment and credit history.

It’s possible to refinance a conventional loan into an FHA loan, and an FHA loan is available for cash-out refinance.

How do I qualify for an FHA loan?

There are a few crucial hurdles you need to clear to qualify for an FHA loan.

1. Down Payment

You’re required to pay an upfront down payment on your home. A down payment is a percentage of the home’s purchase price. Your credit score is directly linked to the minimum down payment you’ll be required to make for an FHA loan. For instance, you can put down as little as 3.5% for a fixed-rate FHA loan if your FICO score is high enough. More on that below.

2. Credit Score

To qualify for the low down payment of 3.5%, you must meet a minimum FICO score specified by your lender. This score can vary from lender to lender, but it is generally lower than the score requirements of other loans, including conventional. If you do not have the minimum score, you may still be eligible for an FHA loan, but your down payment may increase to 10%.

3. Mortgage Insurance

Keep in mind that mortgage insurance is required on all FHA loans, regardless of your down payment amount. Mortgage Insurance Premium (MIP) includes a fee that you’ll pay at closing, as well as a monthly payment that’s part of your monthly mortgage bill.

Check out our mortgage calculator to help estimate your monthly mortgage payment, including a breakdown of interest, insurance, and taxes.

4. FHA Loan Limits

Each year, the FHA calculates the maximum loan amounts, known as FHA lending limits, that it will insure for different parts of the country. The limits are lower for low-cost areas and higher for areas of the country where housing is pricier.

In 2021, the FHA loan limit is $356,362 for a single-family home in low-cost areas. The limit is $822,375 for a single-family home in high-cost markets.

These loan limits are adjusted annually to help account for changing home prices.

Pro tip: To find a complete list of 2021 FHA loan limits, visit their loan limits page.
What’s the Best Loan for You? FHA vs. Conventional

What’s the next step?

A loan originator can help you determine the best loan option for you and your financial situation. At Cardinal Financial, our loan originators embrace every borrower’s unique situation and engineer solutions with the goal to deliver the most personal and professional lending experience.

Reach out to our team today, and we’ll provide you with informative answers to your questions.

Are you considering financing your home through an FHA loan? Contact us now to learn more about how to navigate your home buying journey.

Ready to make moves?

One of our loan originators is standing by to assist you with your free rate quote.
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About the Author
David is a Copywriter at Cardinal Financial. After several years working as a multimedia journalist throughout the Southeast, David now enjoys helping highlight what makes Cardinal—and our people—special. When he’s not writing, he can be found immersed in social media, playing soccer, or watching movies. He lives in South Carolina with his wife and 3-year-old toy poodle.