Best for: Buyers with less-than-pristine credit and those who don’t have a large down payment.
If you’re not sitting on a pile of down payment cash and you have a spotty credit record, there’s a loan for that. Insured by the Federal Housing Administration, FHA loans typically come with smaller down payments and lower credit score requirements than most conventional loans. First-time homebuyers can buy a home with a minimum credit score of 580 and as little as 3.5 percent down, or a credit score of 500 to 579 with at least 10 percent down.
FHA loans have one big catch called mortgage insurance. You’ll pay an upfront premium and annual premiums, driving up your overall borrowing costs. Unlike homeowners insurance, this coverage doesn’t protect you; it protects the lender in case you default on the loan. It’s the price borrowers pay when they have less skin in the game.
Learn more about finding the best FHA lender for you.
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