FHA loans are an attractive option, especially for first-time homeowners because it is insured by the Federal Housing Administration (FHA). Primarily, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Typical features that attract many first-time homebuyers are the low downpayment requirements and the flexible non-traditional credit options. The borrower can be approved with 3.5% down payment instead of 20% that is required on many other loan programs. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.
Borrowers are allowed to receive a gift towards the down payment and can receive a seller’s concession towards the closing cost. Speak to a team member for more details.
FHA Loan Requirements
Important FHA Guidelines for Borrowers
The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.
- FICO score at least 580 = 3.5% down payment.
- FICO score between 500 and 579 = 10% down payment.
- MIP (Mortgage Insurance Premium) is required.
- Debt-to-Income Ratio < 43%.
- The home must be the borrower’s primary residence.
- Borrower must have steady income and proof of employment.