FHA loans

The Federal Housing Administration insures the loan, which means the lender is protected against some of the risk. That insurance is why lenders can offer FHA financing to borrowers who would not fit a conventional guideline.

It is a federal program with a long history, and it exists specifically to widen access to homeownership. For a great many first-time buyers, it is the door that opens first.

FHA generally works well for buyers with a less established credit history, a smaller down payment, or both. It is also forgiving in ways that matter in practice — for example, family gift funds are allowed toward the down payment, which is not universally true elsewhere.

It can also suit someone whose credit is strong but whose savings are thin, because the down payment barrier is lower.

FHA loans carry mortgage insurance, and it comes in two parts: an upfront portion and a monthly portion. The upfront piece is often financed into the loan rather than paid in cash at closing.

The monthly portion generally stays for the life of the loan in many cases, which is different from conventional, where insurance can often be removed once you build equity. That difference is one of the main reasons people compare the two carefully — the FHA payment may be lower at the start and higher many years later.

FHA loans carry property condition requirements, because the program insures the loan against the home as well as the borrower. That can mean certain repairs are required before closing.

In practice this is rarely a problem for a home in reasonable condition. It is worth knowing about in advance, particularly if you are looking at a property that needs work.