What is an FHA Loan?

by Tiffany Beitler

You hear this term thrown around all the time when you start in your home buying journey but do you really know what it is? We’ll explain it for you:

An FHA Loan is one that the Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal. These loans can offer:

Low down payments
Low closing costs
Easy credit qualifying

Sometimes called “helper loans,” FHA loans are designed for buyers who may have less cash to put down at closing or who have a less-than-perfect credit score. But because the FHA/HUD takes on more risk by lending to these buyers, there are also limits on how much buyers borrow when securing an FHA loan.

Nearly 20% of today’s buyers will purchase their home using an FHA loan. FHA Loans are utilized often by first time home buyers because your down payment can be as low as 3.5% of the purchase price. But did you know that FHA loans aren’t just for first-time home buyers? It’s a common misconception but you can also include the costs of energy improvements into an FHA Energy-Efficient Mortgage.

If you want to talk to a lender about the possibility of getting an FHA loan, we’re happy to direct you to local lenders we trust. Getting pre-approved is always a great idea before you start your home search so you know what you can afford.

Learn more about mortgage loan types and financing your home.

Find help for a down payment on a house

Need help with your downpayment? The state of Minnesota and local governments offer programs that can help. These down payment programs can help you save on your down payment and buy sooner. We’ll help you find programs that you are eligible for. Use our free tool to find homebuyer programs for down payment help, closing costs, tax credits and more.

What can you afford when buying a home?

Check out our Home Affordability Calculator to determine how much house you can afford. By entering details about your income, down payment, and monthly debts, you can estimate the mortgage amount that works with your budget.