To help more people, especially those in a lower income bracket or with poor credit scores, become eligible for purchasing a home the Federal Housing Administration created FHA loans. Unlike conventional loans, FHA loans require a significantly lower down payment.
FHA loans are issued by a bank—or mortgage lender—but are insured against default by the government (specifically, the Federal Housing Administration). Because these loans are insured by the government, they pose a low risk for lenders to offer this loan program and allow lenders room to set interest rates. Mortgage brokers and mortgage lenders issue the loans and the rates are based off of the current real estate market and can be influenced by a borrower’s credit score and/or down payment.
To Qualify For An FHA Loan
Loan requirements for an FHA Loan mandate that the borrower be employed for at least two full years prior to applying. The loan must be used for a primary residence; it cannot be used to purchase as second home or investment property.
As for their credit score, the borrower must have either
• A minimum credit score of 580 (although a “no credit” program is available) to qualify for the 3.5% down payment, or
• Have a credit score of 500-579 and make a 10% down payment.
In addition, FHA loan requirements also include that the borrower cannot have had a bankruptcy in the last two years or a foreclosure in the last three years.
With more strict financial guidelines and credit score requirements for conventional loans, FHA loans enable more individuals (or couples) to qualify for a mortgage and become a homeowner. FHA loans are well known for their lower down payment requirements, acceptance of lower credit scores, forgiveness of adverse credit history (like bankruptcies or foreclosures), and more flexible income requirements. To learn if you qualify for an FHA loan, contact us today to review your mortgage needs and current financial standing. We are here to help you go home.