Interested in purchasing a home but don’t have the credit score or down payment to qualify for a conventional loan?
FHA loans are often the loan of choice for those who don’t meet the typical requirements for a conventional mortgage. These loans are insured by the Federal Housing Administration (FHA), allowing for the more lenient terms.
How To Qualify for a FHA Loan
FHA loans require a minimum 3.5% down payment (compared to the typical 20%) and are available to buyers with lower credit scores than conventional mortgages require. FHA loans also have no income limits, meaning buyers with any income can purchase a home with an FHA loan. These loans also allow up to 100% of the down payment to be made up of gifted or down payment assistance funds, which isn’t always the case with other types of loans.
How Do FHA Loans Work?
Functionally, FHA loans work very similarly to other mortgages and the process for taking out this loan is largely the same. That said, anyone taking out an FHA loan will have to account for FHA mortgage insurance, which can be paid at the time of purchase or financed along with the loan. This is an added insurance cost based on the value of the home, the down payment amount, and your credit score. Mortgage insurance can be thought of as an insurance policy for the bank who is taking on more risk by lending to someone who doesn’t meet conventional mortgage requirements.
Additional FHA Loan Details
- These loans permit seller concessions for closing costs and pre-paid costs.
- 30-, 20-, and 15-year fixed rate terms are available.
- 30-year adjustable rate mortgages are available.
- One-unit single family properties, including PUDs and FHA-approved condos are allowed.
- Non-Occupant Co-Borrower may be allowed.
Looking for another mortgage option that offers loans with a low down payment? Read more about our Fannie Mae Homeready Loans.
Interested in finding out if an FHA loan is the best option for you? Honor Bank’s mortgage team is committed to finding the best solutions for our customers, not our own bottom line. Get in touch today to learn more.