FHA Loans
(Federal Housing Administration Loans)
Mortgage loans that offer the most flexible terms including low interest rates and down payment requirements.
In a Nutshell
What are FHA (Federal Housing Administration) Loans?
FHA loans are mortgage loans that are insured by the federal government. Because the government protects lenders in the event a borrower defaults on the loan, lenders are able to offer more lenient and flexible terms than they would be able to otherwise.
These loans are particularly beneficial to both first time buyers and those with lower credit scores that may not qualify for Conventional Loans. Because lenders have a greater ability to offer flexible terms, FHA loans typically only require 3.5% down, as opposed to 20% or more when applying for alternative types of loans.
What to Know Going In
Loan Requirements
There are many factors that affect approval for an FHA loan. While lower credit scores as low as 500 can be acceptable in an FHA loan application, where a borrower’s credit score falls above that range still plays an important role in determining the interest rate available and the down payment required. Scores over 580 typically qualify for 3.5% down, while scores between 500-580 may require as much as a 10% down payment.
FHA loans also require that the borrower pay both an up front and annual mortgage insurance premium (MIP). When MIP can be removed from your loan depends on your lender’s terms, with making 11 years of payments or reaching 78% loan-to-value (LTV) ratio being the most common requirements.This can greatly impact the overall cost of the loan over its full 15-, 20- or 30-year term.
The Upside
Benefits of FHA Loans
Flexibility is king when it comes to FHA loans. Because the lenders, not the government, set minimum interest rates and terms, borrowers have the ability to shop for the very best deal, selecting a lender that can accommodate their financial situation.
Low credit score requirements also give FHA loans the notable ability to make home ownership more accessible and, often, more affordable to borrowers with poor credit history, previous bankruptcies or foreclosures, low cash savings, and/or tight financial circumstances. FHA loans were designed to help borrowers achieve home ownership with fewer requirements and hoops to jump through, making them an ideal choice for first time home buyers as well.
How to Determine if an FHA Loan is Right For You
Meet with a mortgage advisor early in the process of applying for a loan to help solidify the right option for your situation. We’re here to help determine the type of loan that’s best for you.