FHA Loans

Federal Housing Administration (FHA) Loans

Purchasing a home – especially for first-time homebuyers – can be a confusing process. From finding the perfect home to getting the best mortgage loan, understanding FHA loan requirements can make the home buying process easier. Homebuyers often experience extra stress when trying to finance their home, but the mortgage loan process is faster and easier than ever. With lenient FHA loan requirements and advancements in loan processing technology, navigating through an FHA home loan can get you into your dream home with little to worry about. In addition, you don’t have to be a first-time homebuyer to take advantage of FHA mortgage loans.

FHA Loan Requirements

If you’re considering buying a home and lack an immaculate credit score, an FHA loan might be a great option. FHA loans are backed by the Federal Housing Administration (FHA) and available through approved lenders. Since FHA provides mortgage insurance, mortgage lenders are more likely to approve mortgage loans for homebuyers with less than perfect qualifications such as lower credit scores or higher debt-to-income ratios. Even with lenient qualification requirements, the minimum FHA loan down payment can be as low as 3.5%. Down payment assistance can be combined with most FHA home loans. Contact Us for more details.  

FHA Loan Benefits   

If you’re a first-time homebuyer or homeowner, don’t assume that you won’t qualify for a great mortgage loan just because of a lower credit score. FHA loans are surprisingly flexible when it comes to income ratios and credit requirements. This flexibility makes it easy to qualify for a great mortgage loan without missing out on low FHA mortgage rates.

1. Lower Down Payment. The minimum down payment requirement for an FHA loan is 3.5%. However, FHA loans can be combined with down payment assistance loans and grants, second mortgages, and gift funds to help homebuyers. Remember, you don’t have to be a first-time homebuyer to take advantage of an FHA loan.
2. Lower Credit Scores Requirements. What credit score is needed for an FHA loan? FHA mortgage loans do not have a minimum credit score requirement for loan approval. Most mortgage lenders require a 580-credit score for the 3.5% FHA down payment option. However, manual underwriting will consider non-traditional credit for homebuyers with little or no credit history. Credit scores below 580 can be considered with a larger down payment. 
3. Easy FHA Streamline Refinancing. A streamline FHA loan has less qualification requirements and is the fastest, easiest way to reduce your loan payment or loan term on your existing FHA loan.
4. Assumable FHA Loans. If you’re looking to sell and your potential homebuyer meets all the FHA loan requirements, they can assume your existing FHA loan. This has the potential to make your house more marketable in case you need to sell your home.

FHA vs Conventional Loans

Homebuyers with excellent credit can still benefit from the lower FHA interest rate, lower down payment, and low mortgage insurance cost that FHA loans offer in comparison to Conventional home loans.  FHA vs Conventional loans:

• FHA loans allow for a higher debt-to-income (DTI) ratio than Conventional home loans.
• The credit score needed for an FHA loan is lower than Conventional loans. Conventional mortgage loans require a minimum credit score of 620.
• FHA interest rates are typically lower than Conventional loan rates.  
• The mortgage insurance premium (MIP) on an FHA loan is preset and is not as dependent on the borrower’s qualifications. Private mortgage insurance (PMI) on Conventional loans can vary from borrower to borrower based on risk factors. 
• The minimum down payment requirement on an FHA loan is less restrictive than Conventional loans. 

Thanks to funding from the FHA up-front mortgage insurance premium (UFMIP) and MIP, borrowers who are not otherwise able to qualify for conventional mortgage loans still have access to mortgage loans at a low FHA interest rate.

What You Need to Know About FHA Home Loans

First, if you’re approved for an FHA loan, you’ll be paying two mortgage insurance premiums. One is an annual mortgage insurance premium (MI) and the other is an upfront mortgage insurance premium (UFMIP). Your premiums can be rolled into your loan, reducing out-of-pocket expenses. You may be able to avoid mortgage insurance with a conventional mortgage loan, but only if you’re able to afford a 20% down payment, opt for lender-paid MI, or structure a first and second mortgage. 

FHA loans do come with restrictions about the type of property you can finance. The mortgage loan must be for a primary residence. FHA will approve up to a 4-unit property with a low down payment under the right circumstances, and manufactured homes will qualify for an FHA loan.