FHA loans are mortgages insured by the Federal Housing Administration. FHA loan borrowers pay for mortgage insurance that protects the lender from any loss if the borrower defaults on the loan.
Benefits – FHA Loans
- Anyone is able to qualify for the loan – no first time buyer requirement.
- Loan amounts available up to $365,000 with attractive low fixed interest rates.
- Lenders tend to be more flexible with requirements since FHA insures the mortgage.
- FHA loans are easier to qualify for than conventional loans even if you’ve had bad credit history, such as bankruptcy.
- Down payments amounts as low as 3.5%.
Requirements – FHA Loans
- Credit score requirements for FHA loans depends on the type of loan the borrower needs to attain. Borrowers need a minimum credit score of 580 or higher to obtain the 3.5% down .payment requirement. If the borrower credit score falls between 500 and 579, they must make a minimum down payment of at least 10%.
- Home-buyers are able to use their own savings to make the down payment or use other sources including monetary gifts from a family members or grants from a state or local government down-payment assistance program.
- Home-buyers need to obtain their loan through an FHA-approved lender. FHA is not a lender, but rather an insurer. FHA-approved lenders differ in their interest rate, service, and underwriting costs will vary among mortgage lenders.
- FHA loans require two mortgage insurance premiums: 1- An upfront premium is 1.75% of the total loan amount ($1,750 for a $100,000 loan). The premium is paid when the home-buyer obtains the loan but it can be financed into the loan amount. 2- An annual premium (due monthly) and varies depending on the length of the loan, the amount of the loan, and the loan to value ratio.
- FHA loans requires minimum property standards. Desired properties must meet all local building codes and may include condominiums, townhouses, duplexes, and single family residences.
- FHA loans require a clear Credit Alert Verification Reporting System (CAIVRS) report. this is a government system that tracks people who have defaulted, have been delinquent, or have foreclosed on money owed to the government including: Small Business Administration loans, federal student loans, or other FHA loans. Although, if you have paid your debt in full or are current on a repayment plan, you may still be able to qualify for an FHA loan.
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