When shopping around for a mortgage lender, the term FHA loan gets thrown around a lot. However, there isn’t usually a lot that can clearly be said about it in a thirty second commercial. However, there are many reasons why this is the most common loan that is applied for.
What Is A FHA Loan?
A FHA loan is named after the Federal Housing Administration, which insures the loan once it’s approved. This gives you as the home buyer a better deal than what you might get through a Conventional loan. They also have a lot more flexibility than a USDA loan when it comes to the kind of home you can buy and where.
Other benefits include a lower credit barrier, a lower down payment, and potentially a lower interest rate.
How Does A FHA Loan Work?
In order to be approved for a FHA loan, you must have mortgage insurance. This lowers the risk of for the eventual lender who will be the one giving you the money. This is something that is typically paid through your monthly mortgage payment.
What Are The Requirements For A FHA Loan?
As with all loans that go through a private lender, there are a few things to keep in mind to get approved for a FHA loan.
While Conventional loans may require at least a 20% down payment, a FHA loan would only need at least 3.5%. This makes the barrier to entry for homeownership a lot easier, particularly those that may be lower income.
Where Conventional loans require a FICO score of at least 650 or better, some lenders will allow for a score of 580 or better for an FHA loan. Again, a much easier barrier to entry, and one step closer to getting you into your home!
Some of the requirements for a FHA loan are similar to other loans offered. You would need to show that you have a steady income, live in the home as your primary residence, and have a debt-to-income ratio of 50% or less.
If the FHA loan seems like the best option for you in your home buying journey, contact us today!