What is an FHA loan?
FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions, that provide FHA loans provide funding for home purchases while requiring a lower down payment. Buyers may get into a new home with as little as 3.5% down.
Using Government loans, a lower down payment requires the borrower to get private mortgage insurance. This special type of insurance protects the lender just in case the borrower is not able to pay. The cost of PMI is added to the monthly payment until the amount of the loan reaches 20%. FHA loans, on the other hand, do not require PMI because they are backed by the U.S. government. Additional scrutiny is often required during the loan application process using an FHA loan.
What is required for an FHA loan?
Many of the same documents are required for an FHA loan that any potential lender will want to see: employment history, appraisal, debt-to-income ratio. A few additional stipulations are also attached to the FHA loan process. Buyers may have to bring 3.5% of the purchase price as a down payment, more if they have a credit score below 580. FHA loans are only available for the borrower’s primary residence.
Credit requirements may also be lower for FHA loans, given other factors demonstrate that the borrower is able to manage their money responsibly. Each lender looks at individual applications and may ask for additional documentation or explanations. They are often able to work with buyers with a lower credit score or shorter credit history than in other situations.
What is required for an FHA loan?
Have questions? Give us a call! One of our mortgage specialists would be happy to answer all of your questions.
FHA 203K (Renovation)
Whether refinancing your home in order to renovate it or buy a fixer-upper and use additional funds to increase value, FHA 203(k) home improvement loans are a solid option.
An FHA 203(k) Loan is backed by the federal government like all FHA programs and it’s intended for buyers who want to buy a damaged or older house and perform their own repairs using licensed contractors. The lender for this type of home improvement loan gives potential homeowners the money to buy—or refinance—the house, along with money needed for renovation.