FHA Loans
FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default. FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.
Advantages
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Flexible credit score requirements
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Higher allowed DTI ratios
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Competitive interest rates
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Gift funds allowed for down payment/closing costs
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Assumable loan (buyer can take over your low rate)
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Easy streamline refinance option
Downpayment Requirements
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3.5% of the purchase price if your credit score is 580 or higher
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10% of the purchase price if your credit score is between 500–579
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Gift funds allowed from family, employer, or approved sources to cover all or part of the down payment
Eligibility Requirements
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Credit score 580+ (or 500–579 with 10% down)
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3.5% down payment (if credit ≥580)
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Steady income/employment
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DTI ≤43% (sometimes higher)
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Primary residence only
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Mortgage insurance required
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Home must meet FHA property standards
FHA Loan FAQ's
What is the difference between FHA Loans and Conventional Loans?
The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.
Bankruptcy and
FHA Loans
Yes, generally a bankruptcy won't preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.
What is mortgage
insurance?
Mortgage insurance (MI) is a type of insurance that protects the lender if a borrower fails to repay the loan.
For FHA loans, it’s called Mortgage Insurance Premium (MIP):
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Upfront MIP: Usually 1.75% of the loan amount (can be financed into the loan)
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Annual MIP: Paid monthly as part of your mortgage payment
It’s required on FHA loans because of the low down payment, helping lenders take on more risk.
It basically lets you buy a home with less money down while protecting the lender.
LEARN MORE ABOUT
FHA LOANS
In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.
FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.
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Buy a house with as little as 3.5% down.
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Ideal for the first-time homebuyers unable to make larger down payments.
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The right mortgage solution for those who may not qualify for a conventional loan.
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Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.
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