What Is an FHA Loan in Real Estate?

An FHA loan is a mortgage insured by the Federal Housing Administration. It’s designed to help buyers with lower credit scores or smaller down payments qualify for homeownership. Lenders are protected against losses if the borrower defaults, which makes these loans easier to obtain than conventional ones.

✅ How FHA Loans Work

  • The loan is issued by an FHA-approved lender but insured by the federal government.
  • Borrowers can qualify with as little as 3.5% down payment if they have a credit score of 580 or higher.
  • FHA loans require mortgage insurance premiums (MIP) to protect lenders.
  • The property must meet FHA appraisal standards for safety and livability.

This type of financing opens the door to homeownership for many first-time buyers or those recovering from financial challenges.

💡 FHA vs Conventional Loans

  • Down Payment: FHA requires as little as 3.5%, while conventional typically needs 5%–20%.
  • Credit Requirements: FHA loans accept lower credit scores (as low as 500 with higher down payment).
  • Mortgage Insurance: FHA insurance lasts longer — often for the life of the loan unless refinanced.
  • Loan Limits: FHA loans have maximum limits based on county, while conventional loans can exceed those with jumbo options.

📍 Why FHA Loans Matter for FSBO Sellers

If you’re selling For Sale By Owner (FSBO), being FHA-ready can make your home appeal to more buyers. FHA financing is common among first-time buyers, so ensuring your property meets FHA standards can help your sale close faster and smoother.