FHA Loans

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FHA Loans

An FHA Loan is a mortgage that's insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers.

FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.

FHA Loan Requirements:

Important FHA Guidelines for Borrowers

The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, Insuring tens of millions of properties since 1934 when it was created.

• FICO score at least 580 = 3.5% down payment.
• FICO score between 500 and 579 = 10% down payment.
• MIP (Monthly Mortgage Insurance Premium) is required. (For the life of the loan term)
• Debt-to-Income Ratio < 43%. (Can go up to 45-50% in some circumstances)
• The home must be the borrower's primary residence.
• Borrower must have steady income and proof of employment 

After learning about some features of an FHA mortgage, undecided borrowers often choose FHA loans over conventional loans because of lower down payment requirements, better interest rate offerings, and unique refinance opportunities.

Down Payment Requirements
While FHA loans can be had with as little as 3.5% down, conventional loans usually require a 20% down payment. These funds must come exclusively from FHA-approved sources, such as your savings account, money saved at home, investments you have cashed in, gift funds, etc.

• Mortgage Insurance
  Conventional loans usually require the borrower to carry Private Mortgage Insurance if borrowers don't provide a minimum 20% down payment. FHA mortgages are different and require the payment of an Up-Front Mortgage Insurance Premium and an annual Mortgage Insurance Premium (MIP) for the life of the loan period.

Benefits of an FHA Loan

• Easier to Qualify
  FHA provides mortgage programs with lower requirements. This makes it easier for most borrowers to qualify, even those with questionable credit history and low credit scores.
• Competitive Interest Rates
  FHA loans offer low interest rates to help homeowners afford their monthly housing payments. This is a great benefit when compared to the negative features of subprime mortgages.
• Bankruptcy / Foreclosure
  Having a bankruptcy or foreclosure in the past few years doesn't mean you can't qualify for an FHA loan. Re-establishing good credit and a solid payment history can help satisfy FHA requirements. 2 year waiting period from discharge date.
• Determining Credit History
  There are many ways a lender can assess your credit history, and it includes more than just looking at your credit card activity. Any type of payment such as utility bills, rents, student loans, etc. should all reflect a general pattern of reliability.