What to Know About FHA Loans

A couple reviews paperwork with an advisor, reflecting what to know about FHA loans.
A couple reviews paperwork with an advisor, reflecting what to know about FHA loans.

This blog was provided by our expert finance partners at Pulte Mortgage™.

If you’re wondering what to know about FHA loans to make your journey to homeownership more affordable, this guide is for you! An FHA loan might be a great option for you, especially if you don’t have a large down payment saved or a higher credit score. But how do FHA loans work? How do know if you qualify? And how do FHA loans compare to conventional loans? Let’s break down the main things to know about FHA loans in simple terms so you can decide if they’re the right fit for you!

Summary:

  • What Is an FHA Loan?

    • Conventional vs. FHA Loans

  • How Does an FHA Loan Work?

  • How to Know if You Qualify for an FHA Loan

  • Types of FHA Loans

  • Pros and Cons of FHA Loans

  • Is an FHA Loan Right for Me? 

  • Conclusion


What Is an FHA Loan?

An FHA loan is a government-backed mortgage designed to make homeownership more accessible, especially for first-time homebuyers or those with less-than-perfect credit. Since these loans are insured by the Federal Housing Administration (FHA), lenders can offer more flexible qualification requirements when buying a home.


Conventional vs. FHA Loans

One of the most common FHA loan questions homebuyers ask is, "Should I get an FHA loan or a conventional loan?” Here’s a quick comparison to help you decide:


  • Down payment: Depending on the lender and program, both FHA and conventional loans can offer lower down payment options. For conventional loans, down payment requirements can be as low as 3%, while FHA down payment requirements can be as low as 3.5%. 


  • Credit score: FHA loans may come with lower credit score requirements, with qualifications possible with a score in the 500s, while a conventional loan may require a score of 620 or higher. Depending on your lender’s FHA qualifications, your minimum down payment requirement may increase if your credit score is below 580. 


  • Mortgage insurance: If you choose to put down less than 20% of the home’s purchase price as a down payment, you will be required to pay mortgage insurance. For an FHA loan, homebuyers will pay a mortgage insurance premium (MIP), which you can choose to have financed into the loan or pay the total amount upfront. Conventional loans often require private mortgage insurance (PMI), which is known to have a bit more flexibility. 


  • Loan limits: Both FHA and conventional loans have loan limits, which means you can’t purchase a home over a certain price. FHA loan limits are often lower than conventional loan limits, which might not be ideal if you’re purchasing in a high-cost area. These limits are adjusted every year and depend on the location where you’re looking to buy.  


How Does an FHA Loan Work?

An FHA loan works like most other mortgages, with either a fixed or adjustable interest rate and a loan term set for either 15 or 30 years. Here are the typical steps toward acquiring an FHA loan: 


  1. Find an FHA-approved lender. While the Federal Housing Agency insures these loans, they are funded by the lender. With FHA being a popular choice for homebuyers, many lenders offer them.


  1. Check the FHA loan requirements. Your Loan Team can help you further determine if an FHA loan is the right fit for you. However, in the meantime, you can review your credit score, income, and savings to help ensure they meet the minimum requirements for an FHA loan. 


  1. Get an FHA appraisal. You may need an approved appraiser to inspect the property to be sure it qualifies for an FHA loan. The appraiser assesses the property to verify its market value and that it meets basic property standards, such as being structurally sound, free of hazards, and more. 


  1. Close on your new home. Once your lender reviews and verifies your qualifications, they mark you clear to close. Then, you sign the final paperwork and officially become a homeowner!


How to Know if You Qualify for an FHA Loan

FHA loans are known for their flexible qualification requirements, but there are still a few standard conditions you need to meet: 


✔️ A credit score of at least 580

✔️ A decent savings, with at least a 3.5% down payment

✔️ A steady, reliable income source

✔️ At least two years of employment history at your current job

✔️ You plan to purchase a home as the primary resident, not as an investment or vacation property.


Types of FHA Loans

Now that we’ve covered the basics around essentially everything you need to know about FHA loans, you might be surprised to learn that there’s more than one type of FHA loan. Let’s look at a few options, depending on your needs.


FHA 203(b) 

This option is the FHA’s main home loan program and is the standard for buying or refinancing a primary residence. These loans come with fixed or adjustable-rate options, as well as loan terms of 15 or 30 years. 


FHA 203(k) Loan

Also known as a rehabilitation mortgage, this FHA loan may be perfect if you’re buying a fixer-upper and need extra funds for renovations. 


FHA Energy-Efficient Mortgage (EEM) 

An FHA EEM is designed for the purchase of an energy-efficient home or to upgrade a home to make it more energy efficient. These upgrades might include insulation, solar panels, or the installation of energy-efficient appliances.


Home Equity Conversion Mortgage (HECM)

A HECM is a reverse mortgage insured by the FHA that allows those over the age of 62 to tap into their home equity and use it as tax-free income. This may be a helpful tool for those looking to supplement their income in retirement.


FHA 203(h)

Also known as the disaster victims mortgage, this loan is designed to help those who have lost their home due to a major disaster and need to rebuild or buy a new home. 


Pros and Cons of FHA Loans

FHA loans are a great option for many homebuyers, but like any mortgage, they do come with pros and cons. 


Pros of FHA Loans

  • You can qualify with a down payment of as little as 3.5%, allowing you more flexibility for home improvements or building an emergency fund.

  • You can qualify with a less-than-perfect credit score, depending on the size of your down payment.

  • You can own a home sooner rather than later, allowing you to start building equity earlier.


Cons of FHA Loans

  • You cannot avoid mortgage insurance if you put less than 20% down. 

  • FHA loan limits are typically lower than conventional, making it less ideal for buying in high-cost areas. 

  • FHA loans cannot be used to purchase investment properties or vacation homes. 


Is an FHA Loan Right for Me? 

An FHA loan offers flexible qualifications that can help buyers get into a home despite limited down payment savings or less-than-perfect credit scores, making it worth considering for any first-time homebuyer. Your Loan Team can walk you through these loan options and more, depending on what’s available and your qualifications. 


Conclusion

Both FHA and conventional loans can be excellent paths to homeownership, so whichever route you take, you’ll be on your way to making your dream of buying a home a reality. If you have FHA loan questions or need help finding the right mortgage for your situation, our partners at Pulte Mortgage are here to help! 


Explore new construction homes today or browse more Pulte® blogs.



Written By: Meagan Rochard, Financial Services Writer

Last Updated: 7/3/25