What Is A FHA Home Loan?

FHA Home Loan

What Is An FHA Home Loan?

An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). A lot of first time home buyers use an FHA loan because they require a minimum of 3.5% & you can qualify for a FHA home loan with as little as a 580+ credit score. With a 10% down payment borrowers credit score can be between 500 & 579. It’s important to remember though, the lower the credit score, the higher the interest rate the borrowers will receive.

FHA Loan Requirements

The credit score & the down payment amounts are just two of the requirements for FHA loans. Here’s a complete breakdown of the requirements which are set by the Federal Housing Authority.

  1. Having a FICO credit score of 580+ (Unless a 10% down payment is available, then a credit score between 500 & 579 could qualify.)
  2. Having a minimum 3.5% down payment of your total loan amount.
  3. Borrowers must have a steady employment history or worked for the same employer for the past two years.
  4. Borrowers must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
  5. New FHA loans are only available for primary residence occupancy.
  6. Borrowers must have a property appraisal from a FHA-approved appraiser.
  7. Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31% of their gross income. You may be able to qualify with 40% if your lender deems your loan as an acceptable risk from the bank.
  8. Typically borrowers must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.
  9. Typically borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there are extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
  10. The property must meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).

Benefits Of A FHA Loan: Low Down Payments & Less Credit Requirements

Typically an FHA loan is one of the easier types of mortgage loans to qualify for because it requires less money out of pocket & you can have less than perfect credit. An FHA loan normally requires at least 3.5% down payment & in some situations you can have a credit score as low as 500 (with a 10% down payment.)

For example… If you’re looking to purchase a home at $250,000. A 3.5% down payment would be roughly $8,750 & you may be qualified with a credit score above 580.

To find more information about FHA home loans reach out to a member of our team or your preferred loan officer today.