When buying a home, it’s important to choose a mortgage that fits your finances and meets your long-term goals. For buyers with less money for a down payment and with lower credit scores, loans backed by the Federal Housing Administration offer an affordable alternative to conventional loans.
Is an FHA Loan Right for Me?
If you have a lower credit score or can’t afford a large down payment, then an FHA loan may be your best option. However, if you have good credit and can make a down payment of at least 10% of the purchase price, then an FHA loan may be more expensive for you than a conventional loan.
Pros and Cons of FHA Loans
Here are some of the pros and cons of an FHA loans:
FHA Loan Pros and Cons
| Benefits of FHA loans | Downsides of FHA loans |
| Lower down payment requirements. | Maximum loan limits. |
| Lower minimum credit score. | Upfront and annual mortgage insurance. |
| Multiple loan types. | Property must meet FHA requirements. |
| Available for nontraditional properties. | Can be more difficult to compete with buyers who have conventional loans. |
FHA Loans vs. Conventional Loans
Most mortgages are conventional loans. Generally speaking, conventional loans are less expensive than FHA loans, and they’re also more difficult to get.
Here’s a look at key differences between FHA and conventional loans:
FHA Loans vs. Conventional Loans
| FHA Loans | Conventional Loans | |
| Minimum Credit Score | 500 | 620 |
| Minimum Down Payment | 3.5% for people with credit scores above 580. 10% for people with credit scores under 580. | 3%, though mortgage lenders may require more. |
| Mortgage Insurance | 1.75% of the loan amount upfront. 0.45% to 1.05% of the loan amount annually. | Generally required only if the down payment is less than 20% of the purchase price. |
| Loan Term | 15 or 30 years | Eight to 30 years |
FHA Loan Alternatives
If an FHA loan isn’t right for you, there are other alternatives to a conventional mortgage:
- VA loan. This type of loan is backed by the Department of Veterans Affairs, and is offered to eligible service members, veterans, and their surviving spouses.
- USDA loan. This type of loan is backed by the Department of Agriculture, and is offered to low- to moderate-income borrowers buying homes in rural areas.
- State and local programs. Loan programs also are offered by state and local governments, and by nonprofit organizations aimed at making homeownership more attainable for low- and moderate-income families.
FHA Loan FAQ
Here are answers to some frequently asked questions about FHA loans.
