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FHA Home Loan Overview
An FHA home loan is a popular financing option for many borrowers. This type of loan is especially good for first time buyers or buyers who do not have a large down payment.
FHA Home Loan Basics
Though most people assume that an FHA loan is issued directly from the Federal Housing Administration (FHA), the truth is that FHA simply insures the loan.
This insurance assists buyers by making lenders more comfortable with the loan process. A mortgage lender who works with the FHA is much more likely to approve you for a home loan because they know that if you default, FHA will cover the loss. This significantly lowers the risk factor for the lender, especially if the borrower has no credit, less than perfect credit, or a small down payment.
FHA Home Loan Requirements
Requirements for FHA mortgages are a little more lenient than conventional mortgages. First time homebuyers or borrowers who have questionable credit have a better chance of getting approved for a loan with fair interest rates. In most cases, you can have as little as 3 percent down and still qualify.
Because FHA home loan requirements can change, it is a good idea to check with your lender to get the most current requirements. Basic FHA requirements state that borrowers must:
- Show a mostly positive two-year credit history.
- Earn consistent income.
- Be bankruptcy-free for at least two years.
- Have a steady employment record.
In addition to these requirements, borrowers must also make sure that the monthly home loan payment falls below 30 percent of their gross monthly income.
Types of FHA Loans
There are several different types of FHA home loans to choose from. This is beneficial to borrowers, because it allows them to pick a mortgage loan that is suited to their individual financial needs. The most common FHA loans are:
- Adjustable Rate Loans - These loans are a type of HUD mortgage specifically designed for borrowers that would benefit from initially low monthly payments.
- Fixed Rate Mortgages - These loans are great for those who want to have a predictable monthly payment but don't have the down payment needed to qualify for a conventional loan.
- Graduated Payment Mortgages and Growing Equity Mortgages - These FHA loans are best suited for borrowers who currently have a low to moderate income, but expect to make more money in the near future.
- Energy Efficient Mortgages (EEMs) - This mortgage program was created to help potential, and even current, homeowners incorporate the costs of energy efficient home improvements into an FHA loan.
Closing Costs
Bad credit and the lack of a down payment stops many people from becoming homeowners, but another common deterrent is closing costs. If you do not have the money to close on your loan, there are special programs that can help you finance such costs. You may also want to consider asking the seller to pay part or all of the closing costs associated with the loan. This can significantly reduce your financial burden. To learn more about your estimated closing costs and programs that can help with the expenditure, contact your local FHA office.
FHA Loan Benefits
FHA home loans have helped millions of people achieve the dream of homeownership. If you are having trouble qualifying for a conventional mortgage, an FHA loan may be exactly what you need. Approval requirements are much more flexible and low interest rates could help you save thousands of dollars over the life of your loan.
To learn more about how you can get an FHA Home Loan, speak to an approved FHA lender or visit FHA.gov.
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