In today’s blog, we are going to discuss what an FHA Loan is and what you should know about it.

FHA loans are government-backed mortgages insured by the Federal Housing Administration. The reason why homeowners may consider an FHA home loan is that it requires lower minimum credit scores and down payments than many conventional loans; this makes it an ideal option for first-time home buyers. As of FHA’s Annual Report in 2020, more than 83% of all FHA loan originations were for borrowers purchasing their first homes.

It is important to note though that FHA loans are not directly offered by the government, but are offered by private companies who have received the FHA’s stamp of approval.

FHA and Mortgage Insurance

Mortgage loans are typically offered with 15 or 30-year terms. As mentioned earlier, an applicant may be approved of an FHA loan despite not having a pristine credit rating or high income, but there is a small catch.

You have to pay mortgage insurance.

Mortgage insurance protects the lender from a loss if you default on the loan. Mortgage insurance is required on most loans when borrowers put down less than 20%. As the borrower, you are subjected to two mortgage insurance premiums. First, is the upfront mortgage insurance premium, which is usually 1.75% of the loan amount. Therefore, a $150,000 mortgage loan would mean an insurance premium of $2,625.

The other is the annual mortgage insurance premium. This ranges from 0.45 to 1.05% of the total loan amount depending on the length of the term you chose. Going back to our example, your annual premium for a $150,000 mortgage would be $675 to $1,575 a year.

What are the qualifications for approval for an FHA Loan?

We came up with a list so that you can see your chances of being approved for an FHA mortgage loan:

— Down payment and FICO: If you’re willing to put at least a 10% down payment, the FICO score needed is just 500-579. You’ll need a FICO score of more than 580 if you’re only able to put down a 3.5% down payment.

— You can submit an employment record showing you’ve been employed for the past two years.

— Submit verifiable bank statements, tax returns, and payment slips/stubs

— The loan should be used to finance a primary residence

— Proof that an FHA-approved appraiser appraised the property and that it meets HUD guidelines

— Monthly mortgage payments should not account for more than 31% of gross income and all monthly debt payments should not be more than 43% of gross monthly income.

Things to Consider Before Getting an FHA Loan


Before applying for an FHA loan, you have set the limit on how much to spend on a home. This needs a lot of math and many sit-downs with all stakeholders. Factor in your current income and foreseeable cash flow. Pro tip: Use the mortgage lender’s mortgage calculator so that you can see how much your mortgage will be depending on your rate and loan amount.

Be thorough with your paperwork

When applying for loans, you have to set your best foot forward. You have to let your mortgage lenders know that you’re someone they can trust. This means you have to prepare all the documents necessary to prove that you can pay.

Before you apply for an FHA loan, have all these documents ready: two years of tax returns, two recent pay stubs, your driver’s license, and full statements of your assets (checking account, savings account, 401(k) and any other places where you hold money).

Shop for offers

Do not let the thought of applying for an FHA loan deter you from shopping for other options. Being “pre-approved” with multiple lenders is helpful so you can compare different rates and terms to make sure you’re getting the best deal.