What does "Federal Housing Administration (FHA)" mean?

A Federal Housing Administration (FHA) loan is a mortgage insured by the FHA, allowing lenders to offer loans to borrowers with lower credit scores and down payments as low as 3.5%. FHA loans require mortgage insurance premiums, which protect lenders in case of borrower default.

FHA loans require mortgage insurance premiums (MIP), which increase the overall cost of the loan. Borrowers pay an upfront MIP of 1.75% of the loan amount and monthly premiums that can add up to 0.85% of the loan balance for the life of the loan, making them more expensive compared to conventional loans without such requirements. Additionally, FHA loans have stricter property standards that must be met.

Today's FHA mortgage rate is approximately 6.5%. Rates can vary based on the lender, the borrower's credit score, and other factors such as the loan amount and down payment.

Getting approved for an FHA loan is generally easier than for conventional loans. FHA loans require a minimum credit score of 580 for a 3.5% down payment, while a score of 500 to 579 requires a 10% down payment. Lenders also look for a debt-to-income ratio of 43% or lower.