What Is an FHA Loan?

The advent of the FHA loan has converted visions of home ownership into reality for those who never thought it was possible. While the FHA loan isn’t a one-size-fits-all solution for everybody, there are some things about it that make it great and unique. FHA loans allow a buyer to make a down payment of as low as 3.5% with less-than-great-credit. With the FHA 203k program, buyers can also receive extra funding for repairs and renovations. Lastly, the down payment for an FHA loan can be a gift. All of these factors make the FHA loan a truly unique opportunity for first-time homebuyers to make their dreams a reality.


FHA loans can be issued by approved private lenders like banks and credit unions. The FHA (Federal Housing Administration) backs the loan, giving lenders the confidence to approve some otherwise unfit loan applications. The Federal Housing Administration is a government agency founded in 1934 in the middle of the Great Depression, when housing markets were at an all-time low. Since its creation, the FHA has backed millions of loans, making it the largest mortgage insurer in the world. Contrary to popular belief, FHA loans aren’t just for first-time homebuyers. However, you can only have one outstanding FHA loan at a time.

Do I qualify?

FHA loans are a great fit for some individuals. With very little money down, the option of paying the down payment with a gift, help with improvements, and no prepayment penalty, this loan seems like a little too good to be true. However, FHA loans are even easier to qualify for than conventional loans. With government backing, lenders are more willing to approve potential homeowners of all income levels.

FHA loans do not have an income limit. However, you do need a reasonable debt-to-income ratio to qualify. Usually, you should aim for a rate lower than 31/43. For example, if you make $3,500 a month, your house payment needs to be below $1,225. Online tools can help you calculate your average house payment so you can see if you’d qualify.

First Steps

First, consider some of the downsides to using an FHA loan. You will have to pay mortgage insurance at 1.75%, along with a monthly fee that depends on your personal loan risk. You can expect this to be an additional 1% a month. Also prepare to pay a higher interest rate than you would with a conventional loan, or the same. In addition, consider that FHA loans have limits, and if you’re looking to buy a more expensive property, you may not be able to swing it with an FHA loan. If you are still on board, it’s time to jump in!

The best way to start your journey into the world of FHA loans is to talk with a FHA-approved loan officer. These professionals will be able to lead you in the right direction and discuss different options with you if you don’t qualify for an FHA loan for any reason. They will give you a list of everything you need to get started.

It’s worth a shot

Talk to an FHA-approved lender to see if you might qualify for an FHA loan. You may be surprised! Experts encourage that buyers shop around and compare offers from several different sources, FHA and conventional. After approval (or before), talk to our experts here at CDA Real Estate Investment and Property Management to discuss exactly what type of home you want. We have access to the latest and greatest FHA-approved properties. We can help assist you every step of the way. Your dreams of owning a home may be much closer than you think!