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An FHA Home Loan may get you into a home with a low down payment. An FHA loan provides a government-insured loan with flexible loan options. One of the biggest hurdles that first time homebuyers face is saving up for a sizable down payment on a home. Even experienced homeowners may need to plan for a long time for a new home purchase. Fortunately, FHA loans may help some buyers get into the home of their dreams with a lower down payment.

What is an FHA loan?

FHA loans are mortgages insured 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.

While a lower down payment may be advantageous- it will require the borrower to obtain private mortgage insurance (PMI). This special type of insurance protects the lender in the event that the borrower is not able to pay. The cost of PMI is added to the monthly payment for a minimum of 11 years, and in some instances, for the life of the loan.

What is required for an FHA loan?

The qualifying criteria required for an FHA loan are very similar to that of a Conventional loan in that any potential borrower will need to document: employment history, satisfactory appraisal, debt-to-income ratio and a qualifying credit score. It is a common misconception that the FHA loan program is a “First Time Home Buyer Program”. While it can be used by experienced home owners, it is required that the FHA loan is used for a primary residence. A few additional stipulations are also attached to the FHA loan process.

Credit requirements may also be lower for FHA loans if there are other factors that 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.

Highlights of an FHA Loan

  • Purchase your home with as little as 3.5% down payment (compared to 20% required on most loans).
  • 30-, 25-, 20- and 15-year terms are all available with fixed rates.
  • 5-year adjustable rate mortgage available.
  • Pay your mortgage off at any time without pre-payment penalties.
  • Only available for the use on a primary residence
  • Lower minimum qualifying credit score
  • Higher qualifying debt-to-income ratios

Have questions?  Give us a call!  One of our mortgage specialists would be happy to answer all of your questions.

**HighPoint Mortgage Inc. is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.

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