A Detailed Guide to FHA Loans

Those considering buying a home have likely already heard of FHA Loans. However, many don’t know what they are and how they work. In this guide, readers will find out how these loans work, the advantages they offer, and whether an FHA loan is right for them.

What Are FHA Loans?


FHA loans will help lower down payment and put you on the path to new homeownership. They’re backed by the Federal Housing Administration; in the event of a default, the FHA reimburses the lender. The government backing significantly reduces the lender’s risk, allowing them to set lower qualification guidelines and offer loans to more buyers.

Why is FHA Lending So Popular?


FHA lending has been popular in the US for a while, because borrowers can qualify with a down payment of only 3.5%. Many borrowers like these loans because of their lower credit requirements and the ability to have a higher debt to income ratio.

Can Low-Credit Buyers Qualify?


A major reason for the popularity of these loans is that perfect credit isn’t an eligibility requirement. Loans from the FHA have some of the lowest credit requirements of any of today’s available mortgage types.

Loan Requirements

  • Foreclosures, short sales, or bankruptcies after two years can qualify.
  • The home must be a primary residence

The Down Payment

While these loans come with a low down payment, the funds used for it have to be traceable. Buyers can’t use cash, but down payments can come as gifts from family members or friends. In these cases, the borrower and the giver must complete a letter to provide to the loan officer.

Closing Costs

An FHA loan’s closing costs can be paid by the home seller. However, this is a detail that must be included in the purchase contract. Even if a seller doesn’t pay the closing costs, they’re typically included in the loan amount, and they’re not paid upfront by the buyer.


Because the Federal Housing Administration isn’t a lender, borrowers have to get loans through approved lenders. Not all lenders offer the same costs and interest rates, even on the same loan. Services, costs, and underwriting requirements vary widely, and buyers should shop around.

Work With a Loan Officer

Mortgage Insurance Premium

The FHA has two kinds of mortgage insurance: upfront and annual MIP (mortgage insurance premium). Upfront MIP rates of 1.75% are tacked onto the loan, and annual MIP rates are typically .85% of the amount of the loan.

Using Loan Funds for Repairs & Renovations

The Federal Housing Administration has a program known as 203k loans, and there are two types available: streamline and standard. Streamline loans are for those whose homes need minor repairs, and standard loans are for borrowers whose desired homes need substantial work.

FHA Lending for First-Time Buyers

Because of the reasons mentioned above, FHA lending is great for first-time buyers. Lower credit and down payment requirements can help these buyers become homeowners, as can several grants and assistance programs.

There are many reasons to consider applying for FHA Loans in Madison WI, especially for first-time and low-credit home buyers. However, it’s important to compare loan rates and consider other factors before signing any loan paperwork. By learning about the FHA lending process, borrowers can make informed decisions and get the home they really want at an affordable rate.

Start working with an experienced loan officer today