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Should You Get an FHA Loan?
What you'll learn: FHA loan benefits including low down payments, flexible requirements, and more.
EXPECTED READ TIME: 4 MINUTES
August 25, 2022 | Updated July 2, 2025
When it comes to the dream of homeownership, it is not uncommon for homebuyers to worry that buying a home is out of reach. Factors such as a low credit score, high amounts of debt, and little savings in the bank can limit your options.
Fortunately, the government-backed Federal Housing Administration (FHA) loan program may be the solution certain borrowers need. In this article, we will break down the reasons an FHA loan could be right for you.
3 key FHA loan benefits
Understanding the benefits of an FHA loan can help you decide if it is the right choice for your home financing needs. Here are three advantages that make FHA loans a great mortgage option for some homebuyers:
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Low down payment options: Qualified borrowers can get an FHA loan with as little as 3.5% down.
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Flexible credit requirements: Credit score requirements for FHA loans are typically less strict than conventional loans. While the Department of Housing and Urban Development (HUD) allows for lower FICO scores, many lenders have additional requirements on top of the standard guidelines and require a minimum FICO of 620.
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More lenient debt-to-income (DTI) ratio qualifications: Many FHA-approved lenders will accept a DTI ratio up to 43%.
Who should consider an FHA loan
There are many reasons why an FHA loan can be an attractive mortgage option. However, that does not mean it is the right choice for everyone. Some borrowers may find it more advantageous to choose another type of mortgage.
Here are the reasons why you may want to consider consider choosing an FHA loan.
If you have limited credit history
Are you a young first-time homebuyer? It is possible you have not yet built a strong credit history. Your credit report acts as a financial report card documenting your accounts, repayments, and current amount of revolving debt. And the older your credit accounts are, the more they are considered a reliable picture of your creditworthiness. Without a credit card or loan, credit agencies do not have enough data to give you a score.
Not having a credit score can make it challenging to get a conventional mortgage when it comes time to buy a house. That is where an FHA loan comes in. If you have no credit history, some lenders will evaluate your creditworthiness using a nontraditional credit report with proof of on-time payments for rent and utilities.
If your credit score is not perfect
Late payments, high credit balances, loan defaults, foreclosures, and bankruptcies are all documented on credit reports and will negatively impact your credit score. While it is always wise to work to improve your credit score, it can take months, or even years, to bring your score up enough to qualify for a conventional loan with a favorable interest rate. If you are hoping to buy a house soon, an FHA loan may be the answer. Although, many lenders do require a minimum score of 620.
If you have limited savings
With a minimum down payment of just 3.5%, FHA loans are popular options for those with limited savings. It is even acceptable to use gift funds from a close friend, family member, or organization.
If you want to avoid closing costs
FHA borrowers can negotiate to have the seller pay up to 6% of the property sales price toward the closing costs. These costs are made up of many fees that can really add up, such as:
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Origination fees from the home appraisal, courier fees, and credit checks
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Property taxes
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Escrow fees
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Insurance
Just remember to tell your real estate agent you are interested in an FHA loan so they can negotiate with the seller accordingly.
When an FHA loan does not make sense
FHA mortgages do not make sense for everyone. You may not want an FHA loan if you:
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Have a high credit score
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Have enough savings for a 20% down payment
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Want to avoid paying for mortgage insurance premiums (MIP)
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Want a higher-priced home outside the county loan limits in your area
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Do not plan to occupy the property as a primary residence
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Are looking for a fixer-upper that does not meet the minimum property requirements
Explore all of your options
Weighing the advantages of FHA loans against conventional mortgages and other types of home loans is essential when determining the best choice for your individual circumstances. No matter what stage of mortgage research you are in, speaking with a loan expert can be an incredibly valuable source of information. They can walk you through your options based on your unique needs and finances.
SIMILAR ARTICLES
What Are the Requirements for an FHA Loan?
Learn all about FHA loan requirements. From credit scores, down payment amounts, to house condition, and PMI. Read on to see if an FHA loan is right for you.
Top FHA Frequently Asked Questions
Get your FAQs for FHA loans answered. From how many FHA loans can you have to streamline refinances, seasoning fund requirements, and 203K.
How to Apply for an FHA Loan
Applying for an FHA loan is easier if you know how to prepare. Discover what documentation to gather and what type of credit score you'll need. Read on.
How to Get an FHA Loan: Requirements and Simple Guide
See our tips for getting an FHA loan, what to do if you have not established credit, do not have down payment money, or have property problems.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
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