Saving for a large down payment on a new home can feel impossible. An FHA loan might be the solution for first-time homebuyers in 2025. This guide explains FHA loans and how they work.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). This government backing protects lenders if borrowers default.
The FHA pays the lender a portion of the loan, minimizing their risk. FHA loans are available through FHA-approved mortgage lenders, not the government directly. These loans can often be used for a cash-out refinance or a new purchase.
Ready to take the first step towards homeownership with an FHA loan? Allied Mortgage is here to guide you through the process and help you achieve your dream of owning a home.
Why Consider an FHA Loan?
FHA loans offer several advantages, especially for first-time homebuyers. The down payment can be as low as 3.5% of the purchase price. This makes homeownership more accessible for those with limited savings.
FHA loans also have more flexible credit score requirements than conventional loans. Generally, they accept down to a 580 credit score or lower. Borrowers with less-than-perfect credit, or perhaps some credit card debt or a car loan, might still qualify.
This program makes it easier to get a mortgage loan with some blemished credit and without needing perfect credit scores or reports
FHA Loan Requirements
While FHA loans are generally more accessible, certain requirements must be met.
These loan requirements typically include a minimum credit score, though it is lower than what’s required for a conventional loan. You’ll also need proof of income, employment and possibly statements from your checking accounts and/or savings accounts.
The home must be your primary residence, not an investment property or a small business. The property must also meet certain standards and be approved by an FHA-approved appraiser to ensure it’s safe and livable.
Uses of FHA Loans
These loans can often be used for a variety of purposes, including:
- Cash-out Refinance: Refinancing an existing mortgage to tap into the equity in your home and receive cash at closing.
- New purchase: Buying a new home, including single-family homes, townhouses, and condominiums.
- Other uses: FHA loans can also be used for other purposes, such as rehabilitating a home or purchasing a manufactured home.
Dreaming of homeownership but worried about the down payment? FHA loans could be your answer! With low down payments and flexible credit requirements, you might qualify sooner than you think.
FHA Loan Limits
FHA loans have maximum loan amounts. These loan limits vary by location and property type.
In 2025, the limit for a single-family home in most areas is $524,225, while in higher-cost areas, the maximum loan amount is $1,209,750. HUD provides resources to help determine current limits in your area. Consider using a mortgage calculator to get a more precise loan limit amount for your circumstance
FHA Loan Down Payment and Mortgage Insurance
The minimum down payment for an FHA loan is 3.5% for borrowers with credit scores of 580 or higher.
For credit scores between 500 and 579, the minimum down payment requirement for a borrower increases to 10% of the loan purchase price. All FHA loans require mortgage insurance premiums (MIP). There’s an upfront MIP at closing and an annual MIP, adding to the total loan payments.
FHA Loans vs. Conventional Loans
Choosing the right loan depends on your financial history and individual circumstances. FHA loans offer greater accessibility, but they include mortgage insurance premiums. Conventional loans typically require higher down payments and credit scores, but they may offer lower costs over time if you qualify.
| Feature | FHA Loan | Conventional Loan |
| Down Payment | As low as 3.5% | Typically 5-20% |
| Credit Score | More Flexible | More Strict |
| Mortgage Insurance | Required (MIP) | Private mortgage insurance (PMI) if down payment is less than 20% |
Whether you’re a first-time homebuyer or looking to refinance, Allied Mortgage can help you navigate the FHA loan process with ease. Take advantage of their expertise and personalized service today!
Conclusion
An FHA loan offers a unique path to homeownership, particularly for first-time buyers and those facing financial hurdles.
The lower down payment requirements and more lenient credit score requirements can be highly advantageous. The mortgage insurance premiums do increase costs. Carefully weigh your options, compare different mortgage rates offered from various lenders and seek expert advice before deciding on any mortgage loan to see if an FHA loan, or conventional loans, best suit your situation.
FAQs About FHA Loan
What is an FHA loan and who qualifies?
An FHA loan, part of the Federal Housing Administration and Urban Development initiatives, offers homebuyers lower interest rates, reduced down payments, and greater accessibility to the market.
It caters particularly to first-time homebuyers and those with varied credit histories. Qualification requirements include having credit score at a minimum level and proving steady income, while making the home your primary residence and obtaining a loan that stays within the approved FHA loan limits.
What is the downside to an FHA loan?
The primary drawback to FHA loans is the requirement for mortgage insurance premiums (MIP). This insurance protects the lender, but it increases the borrower’s costs. This applies to both those with good and bad credit.
MIP payments are made upfront and annually, increasing the overall loan expense. This also applies to a refinance transaction using the FHA program.
What is the FHA loan limit in Ohio?
FHA loan limits vary by state and county. You can find the most up-to-date loan limits for Ohio and other states on the HUD website. Loan limits are updated annually, and depend on your county.
Are FHA loans hard to get?
FHA loans are generally easier to obtain than conventional loans. This is due primarily to the lower down payment options, which can be as little as 3.5%.
They are designed to cater to first-time buyers and individuals with less-than-perfect credit histories. The flexible qualifying criteria offer wider homebuying access for those who might face challenges getting a conventional loan. Many FHA-approved lenders allow applicants with scores in the lower 500 range. The annual MIP does still exist.