Because of their low credit and down payment requirements, FHA loans are typically much easier to qualify for than conventional loans and make the most popular type of first-time homebuyer loan used to purchase a home. Borrowers need a minimum FICO score of 580 to qualify for a 3.5 percent down payment. If your FICO score is between 500 and 579, a 10 percent down payment is required. There also are no maximum income limits, but you must meet a debt-to-income ratio limit of no greater than 43 percent and demonstrate adequate income to repay the loan principal.
An FHA loan is typically one of the easiest types of home loans to qualify for because it allows a low down payment and less-than-perfect credit. An FHA mortgage has a maximum loan-to-value ratio of 96.5 percent, meaning you only need a 3.5 percent down payment. Borrowers who are unable to save up 20 percent for a down payment or have a lower credit score should consider whether an FHA loan could serve their goals.
The FHA does not require an appraisal on a streamline refinance, which is important because it means borrowers with little or no equity may be able to refinance.
Unlike conventional home loans, FHA loans are government-backed, which protects lenders against defaults, making it possible for them to offer prospective borrowers more competitive interest rates on traditionally more risky loans.
There are more than 2,000 homeownership assistance programs that work in tandem with FHA loans to provide additional assistance with down payments and other costs. Most of these programs have income limits.
FHA home loans are assumable, which means that if the borrower decides to sell the house, the new buyer can take on the loan in their place. Such a feature can also be very useful, for instance, if they need a co-signer in order to buy a house but later want to assume full responsibility for the loan when they get sufficient funds.
If you have a question that deals with clients, customers or the public in general, there is bound to be a need for the FAQ page.
This loan is a great option for people whose credit scores are 580 and higher, and who have a 3.5% down payment. Read more about other benefits below.
These loans are insured by the Federal Housing Administration (FHA).
The FHA protects lenders against defaults on payments. This makes it easier for you to qualify, and allows lenders to offer lower interest rates.
In order to use an FHA loan to buy a house, the property must meet the Department of Housing and Urban Development’s minimum property criteria. FHA loans are available for many different types of FHA-approved properties:
1-4 unit residential homes
Townhouses and condominiums
Mobile, manufactured and/or modular homes
Need help determining if your property qualifies for an FHA loan? Our Mortgage Fast loan officers offer no-obligation mortgage consultations and quotes.
A conventional mortgage loan is originated in the private sector and is not insured by the government. This means that, unlike federally insured loans, conventional loans carry no guarantees for the lender if the borrower fails to repay the loan.
An FHA loan product is also originated in the private sector, however, it is insured by the government through the Federal Housing Administration. This insurance is designed to protect the lender, not the borrower. It means if the borrower defaults on the loan and their house isn’t worth enough to fully repay the debt through a foreclosure sale, the FHA will compensate the lender for the loss.
That security of the FHA comes at the cost of the borrower. With FHA loans, the buyer must pay a percentage of upfront mortgage insurance premium at closing, regardless of the down payment. Then, the buyer must make monthly mortgage insurance payments for the life of the FHA loan if the down payment is less than 10 percent.
Another important difference to note (as compared to conventional loans) is that FHA loans generally have smaller down-payment requirements and more flexible underwriting standards. As a result, an FHA loan may help individuals with less-than-perfect credit and less cash on hand qualify for a mortgage or refinance. However, it’s important to note that while the FHA may less strict qualifying standards, individual banks and lenders will always set their own FHA underwriting guidelines on top of those, known as lender overlays.
Finally, they can allow the home to go into foreclosure. The decision your heirs make will usually depend on how much equity is in the home. You shouldn’t take a reverse mortgage if leaving your home to your heirs is a high priority for you.