FHA loans are insured by the Federal Housing Administration, which allows lenders to offer mortgage financing to more homebuyers — ones who may not meet the qualifications of conventional loan programs. Because the government backs these loans, the requirements are a little more flexible.
Who are FHA loans for?
In the eyes of financial institutions, there are certain characteristics of a “risky” homebuyer. These may include things like minimal funds for a down payment or a low credit score. If you fall into that boat, we believe these things shouldn’t define you or stop you from getting a home.
The Federal Housing Administration agrees, and that’s where FHA loans come in; it’s their way of backing the loans up so mortgage lenders can take on higher-risk customers (aka those that, by traditional standards, are less likely to pay back their mortgage). The FHA provides a safety net in the event that that does happen.
That safety net is presented in the form of mortgage insurance. Homeowners with FHA mortgages have to pay mortgage insurance every month in addition to their mortgage payment, whereas homeowners with other loan types may not have to.
Low Down Payment
FHA loans are great for first-time homebuyers and repeat buyers alike. The biggest advantage is the low down payment requirement. You can put as little as 3.5% down and still qualify for this type of loan — keeping more cash in your pocket now. This is great for first-time homebuyers who have always rented because they thought they couldn’t afford a down payment for a new house, or those with student loan debt who have had trouble putting money aside.
Low Credit Score Requirement
Another major benefit of FHA loans is the credit score requirement. Individuals with a credit score as low as 580 may qualify for an FHA loan. Plus, owning a home and making your payments on time can actually help build your credit score — it’s a win-win.
We also offer an FHA loan option for those with no credit score. If you don’t have a credit score, we’ll look at things like cell phone bills, rent payment history, utilities, etc. instead.
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!
