An FHA loan is a type of mortgage that is backed by the Federal Housing Administration. Often times, these are the best loans for people with lower credit scores looking for the lowest down payment possible.
Lower Credit Scores
If you have FICO credit scores below a 640, then the FHA loan could be the best option for you. With a sub 640 FICO score, you could still qualify for a conventional loan but you most likely would save money and get a better rate on an FHA loan.
3.5% Down Payment
Another advantage to using an FHA loan is that they will accept a down payment as low as 3.5%, even with lower FICO credit scores. And if using a down payment assistance program, you can buy with FHA and you just need enough for your closing costs.
Higher Purchase Price
In some cases buyers are able to get a slightly higher max purchase price using an FHA loan compared to a conventional loan. This is because FHA can allow a slightly higher debt-to-income ratio than most conventional loans.
