Overview
An FHA home loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. FHA loans are very popular, especially with first-time home buyers. Borrowers can typically qualify for an FHA loan with a down payment as little as 3.5% and a credit score of 580 or higher. The borrower’s credit score can be between 500 – 579 if a 10% down payment is made. The Federal Housing Administration (FHA), provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes.
FHA Home Loan Benefits
In order to get a FHA loan, your lender must be approved by the Federal Housing Authority. Browse Loan Smart’s Lender database to quickly find FHA approved lenders or just submit your loan request and you will receive custom quotes from our marketplace filled with mortgage and lending experts.
Low Down Payment
In most cases, FHA home loans require a lower down payment for borrowers on their primary residences
Credit Requirements
The credit requirements for FHA mortgages when compared with other home lending products are in some cases less stringent
Assumable Mortgage
In many cases, FHA home loans are assumable – meaning the outstanding mortgage and its terms can be transferred from the current owner to a buyer
Debt Ratio
In some cases, depending on the lender, FHA home loans can allow for higher front-end and back-end debt ratios
Qualifying for A FHA Home Loan
There are certain criteria that must be met in order to be eligible for FHA financing. An advantage of FHA loans is that FHA does not require a credit scoring item called a FICO (Fair Isaac Company) score. Therefore, if you have no credit at all you may still qualify for a FHA loan. If you have some credit you will typically need a minimum middle credit score of 580 to qualify for a FHA loan. The below list includes some (not all) of the requirements set forth by the FHA. In addition to FHA’s requirements, your FHA approved lender may have additional stipulations for its borrowers:
Bankruptcy
Two years out of bankruptcy and have re-established good credit
500 Credit Score
Minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent
3.5% Down Payment
Minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent
Primary Residence
New FHA loans are typically only available for primary residence occupancy
Foreclosure
Three years out of foreclosure and have re-established good credit
Debt Ratio
Debt ratios Front-end < 47% and back end < 56% (at lenders discretion)
Mortgage Insurance
FHA Mortgages are subject to at least two types of mortgage insurance (Upfront & Monthly)
Age Requirements
There is no maximum age limit for a borrower and the minimum age is the age for which a mortgage note can be legally enforced