FHA Loans

What Are FHA Loans?

FHA loans are government-backed mortgages, insured by the Federal Housing Administration. They are great for first-time homebuyers and people with less than stellar credit, offering flexible credit score, low down payments, and allowing for higher Debt-to-Income ratios depending on your credit score. All in all, FHA loans tend to offer lower entry barriers than other types of loans.

While conventional mortgages require a minimum credit score of 620-ish, FHA loans can go as low as 500. While down payments for regular loans usually sit between 5% and 20%, FHA ones offer down payments between 3.5% and 10%. However, in spite of their accessibility, FHA loans do have a significant drawback: Most of them require you to buy a mortgage insurance, and pony-up an up-front mortgage insurance premium. Coverages intended to protect the lenders in case of defaulting on the loan. These extra expenses drive up your overall costs and should be kept in mind at all times.

Already have a FHA loan on your sights? Use our mortgage calculator and make sure it’s the right one for you!

FHA Loans – Notable Requirements

Different types of loans vary wildly on their qualification requirements.

While these might not be all the requirements to qualify for an FHA loan, they are definitively essential to know up front!

• They can be accessed by people with 500 credit score or higher.
• If you have at least 580 credit score, you can get a down payment as low as 3.5% (scores between 500 and 579 usually require a 10% down payment).
• You have to have a steady work history, or having worked for the same employer for at least two years.
• You need to verify your income through pay stubs, federal tax returns, and/or bank statements.
• You can only use FHA loans to purchase a primary residence (which means 5-year commitment at minimum).
• An FHA-approved appraiser has to evaluate the property, which has to meet HUD property guidelines.
• If you have declared bankruptcy, you need to wait for at least two years before applying for an FHA loan, and three years after a foreclosure.

FHA Loans & Accessibility – All You Need to Know:

FHA loans lower qualification barriers make them ideal for people with low credit scores, or less than stellar credit history, as well as new home buyers and self-employed people with alternative income documentation. They can also be a great alternative if you don’t have a lot of cash available to cover bigger down payments.

If you have a 500-point credit score, you are eligible to apply for FHA loans. However, do keep in mind that up to 579, you’ll need to provide a down payment equal to 10% the property value. Past the 580 mark, FHA loans become much more attractive, requiring really low down payment fees.

Another particular point of note is that FHA does make some allowances for people with credit scores below 500. Under certain circumstances, applicants with “nontraditional credit history”, or “insufficient credit” can qualify for the loan when other criteria are met.

Lastly, it’s important to understand that borrowers get their home loans from FHA-approved lenders, rather than directly from the FHA itself, who only insures the loans. This means that different approved lenders can have different costs, rates, and requirements, even for the same loan!

Ready to get that FHA Loan you’ve been looking for? Let us help!