An FHA loan, insured by the Federal Housing Administration, is a government-supported mortgage. Although it’s open to any applicant, its conception was primarily to aid lower-income individuals in procuring a mortgage.

They provide a safety net for lenders against defaults, thus making the terms of an FHA loan generally more favorable than conventional loans. Key features of FHA loans include:

  • Lower upfront costs: The down payments required can be as meager as 3.5% of the total purchase price.
  • Reduced closing expenses: These can even be incorporated into the loan itself thanks to the flexibility of FHA loans.
  • Accommodative credit score requirements: You may be eligible for the minimum down-payment with a credit score starting from just 580.

Moreover, FHA loans offer additional advantages:

  • They’re transferable
  • Absence of prepayment penalties allows borrowers to settle the loan at their convenience

However, some disadvantages accompany FHA loans:

  • Mandatory Mortgage insurance premiums if your loan-to-value (LTV) ratio falls below 95%. This contrasts with conventional loans that demand mortgage insurance only when the LTV surpasses 80%.
  • Caps on loan amounts: The maximum amount that can be borrowed is dependent on your intended place of residence, though it usually sets at $625,500.