FHA Loans

FHA Loans: What They Are and How They Work

FHA loans are government-backed mortgages insured by the Federal Housing Administration. They’re designed to help more people become homeowners by offering flexible credit and income guidelines. These loans are especially popular with first-time buyers or those with less-than-perfect credit.

What Is an FHA Loan?

An FHA loan allows buyers to:

• Purchase a home with as little as 3.5% down
• Qualify with a lower credit score (as low as 580)
• Benefit from more lenient debt-to-income ratio requirements

Because the government insures the loan, lenders are more willing to offer favorable terms to borrowers who may not qualify for conventional financing.

How to Qualify for an FHA Loan

To qualify, most borrowers will need:

• A credit score of 580 or higher (500–579 may be allowed with 10% down)
• A minimum 3.5% down payment
• A manageable debt-to-income ratio (typically under 43%)
• Steady employment and income
• A home that meets FHA appraisal and safety standards

FHA vs. Conventional Loans

Choosing between an FHA and a conventional loan depends on your financial profile.

FHA loans may be a better fit if:

• You have a credit score below 680
• You need a lower down payment
• You want more flexibility in qualifying

Conventional loans may be a better fit if:

• You have strong credit
• You can put 5% or more down
• You want mortgage insurance that can be removed once you reach 20% equity

Mortgage Insurance and Other Costs

FHA loans require mortgage insurance, known as MIP (Mortgage Insurance Premium), which includes:

• An upfront MIP of 1.75% of the loan amount (often financed into the loan)
• An annual MIP that is paid monthly and varies based on loan size and term

Unlike conventional loans, FHA mortgage insurance typically stays on the loan for the life of the loan unless you put 10% or more down, in which case it lasts for 11 years.

Additional costs include standard closing costs, and the home must pass an FHA-specific appraisal to ensure it meets certain safety and livability standards.

Ready to Explore Your Options?

If you’re considering an FHA loan or aren’t sure whether FHA or conventional is right for you, we’re here to help you compare programs and guide you toward the best fit for your goals.  Contact the Oklahoma Mortgage Group today!