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Freddie Mac weekly average: 30-yr fixed 6.71%, 15-yr fixed 6.04%. Not a quote, no APR published. See /rates.

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Loan type

FHA loans

FHA loans charge a 1.75% up-front insurance fee, plus a smaller fee each month. In exchange, they accept lower credit scores and a 3.5% down payment. The Federal Housing Administration insures these loans.

Estimate your FHA payment with insurance

Who this is for

  • Credit scores from 580, with 3.5% down, or 500 to 579, with 10% down.
  • First-time and repeat buyers of a home they plan to live in.
  • Borrowers with higher debt-to-income ratios, sometimes up to 50% or more of their income.

How it works, step by step

  1. Check the FHA loan limit for your county, since it changes every year and caps how much you can borrow.
  2. Budget for two mortgage insurance charges: 1.75% up front, usually rolled into the loan, and a smaller annual charge paid monthly.
  3. The home must pass an FHA appraisal, which checks safety and condition, not just value.
  4. Plan your exit, since many FHA borrowers refinance into a conventional loan once they reach 20% equity, so the insurance drops off.

Pros

  • The easiest qualifying of the major loan types, which helps buyers with thinner credit.
  • Rates are often lower than conventional loans for the same credit score.
  • Gift funds from family can cover the whole down payment.

Cons

  • You pay mortgage insurance for the life of the loan if you put down under 10%.
  • The up-front fee gets added to your loan balance, raising what you owe.
  • Rules about the home's condition can complicate buying an older home.