An FHA loan is a home loan that the U.S. Federal Housing Administration (FHA) insures. If you don’t repay your loan, the FHA will pay the lender instead.

Because of this insurance, lenders are willing to make mortgage loans in cases when they would otherwise be unwilling to approve loan applications.

Benefits of FHA Loans

Smaller down payment: FHA loans allow you to buy a home with a down payment as low as 3.5 percent. Other (conventional) loan programs may require a larger down payment, or they require high credit scores and high incomes to get approved with a small down payment.

Let others help: It’s easier to use gifts for your down payment and closing costs with FHA financing. Also, sellers can pay up to 6 percent of the loan amount toward a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but even in strong markets, you can potentially adjust your offer price enough to entice sellers.

BK or Foreclosure: With a recent bankruptcy or foreclosure in your history, FHA loans make it easier to get approved. Two or three years after financial hardship is typically enough to qualify for financing.

Home improvement and repairs: Certain FHA loans can be used to pay for home improvement (through FHA 203k programs). If you’re buying property that needs upgrades, those programs make it easier to fund your purchase and improvements with just one loan.