9 Things FHA Mortgages Can Do

The first FHA mortgage loan was made in 1934. It's the original U.S. mortgage loan.

Nine decades later, 1-in-5 home buyers use FHA loans, and it’s the most inclusionary loan program in the world.

  • You don’t need a 20 percent downpayment with FHA loans
  • Buyers of all credit types can be approved
  • You can earn a modest income and still be FHA mortgage-approved

This list shows nine reasons why FHA loans remain popular.

1. FHA-backed mortgages require just 3.5% down

For all home types, FHA-backed mortgages require a down payment of 3.5 percent — $3,500 for every $100,000 in your home’s sale price. Most home buyers using the FHA program put down between 3.5 and five percent.

2. The FHA mortgage program is inclusive

There are no “special” qualification standards with the FHA mortgage program. You can live in any type of home, in any U.S. city, and get FHA-approved.

You don’t even need a social security number. Non-permanent resident aliens can use FHA mortgages; and, so can employees of the World Bank and foreign embassies.

3. FHA mortgages are flexible about your credit rating

You don’t need perfect credit to get approved for an FHA mortgage. You don’t need an above-average rating. FHA mortgage guidelines instruct lenders to look beyond a person’s credit score and find the “bigger picture.”

Officially, the FHA doesn’t enforce minimum credit score requirements – you can get an FHA approval without a credit score.

4. FHA mortgages allow cash gifts for a downpayment

When you buy a house and use an FHA-backed home loan, your entire down payment can be a cash gift from a parent or relative; or, an approved charitable group or foundation.

5. FHA mortgages can be fixed or adjustable, 30 years or 15 years

FHA mortgages can be customized to match your specific needs. Home buyers can choose between fixed-rate or adjustable; and, between a loan length of 15 years or 30 years.

6. FHA mortgages can be transferred to a future home buyer

FHA mortgages are assumable, which means that your loan can be taken over by the eventual buyer of your home, with the same interest rate you have today. Assumable mortgages can give you an advantage over other sellers in the future — especially if interest rates climb.

7. You get access to the FHA Streamline Refinance

When you have an FHA mortgage, you get access to a unique mortgage refinance program called the FHA Streamline Refinance. The FHA Streamline Refinance is a fast and easy way to lower your interest rate. There’s no income or employment verification, no check of your credit, and no appraisal performed of your home.

8. FHA mortgages can be used for multi-unit homes

For multi-unit homes, FHA mortgage rates are often lower as compared to other types of mortgages. Down payment requirements for multi-unit FHA loans are typically smaller, too.

9. FHA closing costs can be paid by the seller

It’s common for home sellers to pay FHA loan closing costs on behalf of home buyers through an option called seller concessions. With seller concessions, the home seller can designate up to 6 percent of a home’s sale price to you to offset loan fees, costs, and taxes.

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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