FHA loans are loans from private lenders that are regulated and insured by the Federal Housing Administration (FHA) , a government agency. The FHA doesn’t lend the money directly–private lenders do.
- Allow for down payments as low as 3.5 percent.
- Allow lower credit scores than most conventional loans.
- Have a maximum loan amount that varies by county. Learn your FHA loan limit.
For borrowers with good credit and a medium (10-15 percent) down payment, FHA loans tend to be more expensive than conventional loans. For borrowers with lower credit scores or a smaller down payment, FHA loans can often be the cheapest option.
But there are no hard-and-fast rules—a lot depends on the current market. If you’re not sure, ask lenders for quotes for both options and compare total costs to see which offers the best overall deal.
Mortgage insurance is required for all FHA loans. More on mortgage insurance.