FHA Loans

What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA doesn't make the loan or set the interest rate — it insures the loan so that, if a borrower defaults, the lender is protected. That insurance lets lenders offer loans with lower down payments and more flexible credit guidelines than many conventional programs.

Created in 1934 to improve housing standards and broaden access to home financing, the FHA program has helped generations of families who might otherwise have been shut out of the housing market buy a home of their own.

Who it's for

FHA loans are a popular choice for first-time buyers and for anyone who may not fit neatly into conventional financing. They're especially helpful if you have a smaller down payment, a limited or imperfect credit history, or income that doesn't fit a standard mold. FHA financing is for primary residences and is available on single-family homes and eligible multi-unit properties you live in.

How it works

The headline benefit is the low down payment: qualified buyers can put down as little as 3.5%. In many cases, down payment assistance programs can be layered on top of an FHA loan to help cover the down payment and some closing costs.

FHA also uses more flexible debt-to-income and credit guidelines than many conventional loans. Rather than relying heavily on a credit score alone, FHA underwriting takes a common-sense look at your overall profile and asks for a reasonable explanation of any credit issues. That flexibility is what makes FHA such a common path to a first home.

FHA versus conventional

The main difference is access. An FHA loan typically allows a lower down payment and applies more flexible credit qualifying criteria, which can open the door for buyers without a long credit history or with minor past credit problems. Conventional financing leans more heavily on credit scores, so if your score falls below a program's minimum, you may not qualify. FHA will look at the reasons behind a credit issue and use common-sense underwriting.

The trade-off is mortgage insurance. FHA loans carry their own mortgage insurance, and unlike conventional PMI, it generally stays on the loan rather than dropping off automatically at 20% equity. We'll walk you through how that compares so you can choose the loan that costs you the least over the time you expect to keep it.

What you'll need to apply

Your approval depends on the documentation you provide, so it helps to gather these ahead of time:

• Employment and income — recent pay stubs, W-2s or 1099s, and your last two years of tax returns. Self-employed buyers should also bring year-to-date profit-and-loss statements.
• Assets — recent statements for your bank, retirement, and any investment accounts.
• Credit — recent bills and statements, and details on your rent or current mortgage history. Bankruptcy and discharge papers if they apply.
• Identification — a driver's license and Social Security card, plus any divorce, alimony, or child support paperwork and immigration documents if applicable.

We'll give you a clear checklist up front so nothing slows you down later.

Bankruptcy and FHA loans

A past bankruptcy doesn't automatically preclude an FHA loan. Lenders generally want to see that you've re-established credit and made your payments on time for a period after the discharge, with no new credit problems since. Exceptions are sometimes available for borrowers who went through genuine extenuating circumstances, such as a serious medical event. If a bankruptcy is part of your history, we can help you understand the current requirements and a realistic timeline.