An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Borrowers with FHA Loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.Because of that insurance, lenders can — and do — offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements.

Following are seven facts all buyers should know about FHA loans.

The FHA doesn’t mandate a minimum credit score each borrower’s creditworthiness is considered in context. Some leeway is allowed, even for borrowers who’ve filed for bankruptcy.Lenders can overlay their own requirements on top of the FHA’s guidelines. Some lenders might require a minimum credit score. Ask prospective lenders about such a requirement if your credit is less than perfect.
Lenders underwrite FHA loans to ensure that the customer has the willingness and capability to repay the loan.

The FHA requires a down payment of just 3.5 percent of the purchase price of the home. That’s a fraction of the percentage typically required on most other loans and a huge attraction. Borrowers can use their own savings to make the down payment. But other allowed sources of cash include a gift from a family member, or a grant from a state or local government down payment assistance program.

Because the FHA is not a lender, but rather an insurance fund, borrowers need to get their loan through an FHA-approved lender (as opposed to directly from the FHA). Not all FHA-approved lenders offer the same interest rate and costs — even on the same FHA loan. That’s another borrowers should shop around.

Two mortgage insurance premiums are required on all FHA loans: The upfront premium is 2.25 percent of the loan amount, and the annual premium is 0.55 percent of the loan amount. The upfront premium must be paid when the borrower gets the loan but can be financed as part of the loan amount. The annual premium is paid in chunks of 1/12th of the total along with each month’s mortgage payment..However, borrowers need to compare the FHA-insured loan to a loan that’s not FHA-insured (and consequently requires a much larger down payment). In many cases, the FHA loan is still the best choice. The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The chief advantage of this type of loan, called a 203 (k) is that the loan amount is based not on the current appraised value of the home but on the projected value after the repairs are completed. A so-called “streamlined” 203(k) allows the borrower to finance up to $35,000 in nonstructural repairs, such as painting and replacing cabinets or fixtures.