If you are considering purchasing a home, you may wonder what your financing options are. While there are many mortgage options available, some of the most common loan types are conventional, FHA, VA, USDA, and Jumbo loans. Over the next several weeks, we will answer the top 5 questions about the top 5 types of home loans. This week, we will discuss FHA Loans.
An FHA Loan is a type of government-insured loan offered by the Federal Housing Administration (FHA). Rather than lending money directly to home buyers, the FHA insures lenders against losses that may occur in the event that the borrower defaults on the loan. This allows lenders to offer these loans with less strict requirements than conventional or other home loans.
If you are considering an FHA loan for your home purchase, read on to learn the answers to some of the most common questions home buyers have about FHA Loans.
- Who is eligible for an FHA loan?
Anyone who does not already have an FHA loan is eligible to use this program. FHA loans are popular with low-income and first-time home buyers, due to the less stringent requirements. They have lower down payment requirements and tend toave lower credit score requirements.
- What are the down payment and credit requirements for an FHA loan?
The minimum down payment amount for an FHA loan is 3.5%. This is much lower than the down payment amount for a conventional loan, which is normally 20%. Additionally, FHA loans allow for down payment assistance provided as a gift by a family member, employer, or charitable organization, which other loan programs do not allow.
The credit score requirements for an FHA loan will depend on your lender. However, if you have no credit history or have just begun your credit history, an FHA loan will allow you to add a family member as a co-signer on your loan.
- Are there additional costs or fees associated with an FHA loan?
If you opt for an FHA loan, you will be required to pay a Mortgage Insurance Premium (MIP) in addition to your monthly mortgage payments. Mortgage insurance protects your lender from losses in the event that you default on your mortgage.
- What if I have a previous foreclosure?
If you had a foreclosure or deed-in-lieu of a foreclosure, you may not be eligible for an FHA loan for three years after the date the title was transferred from you. However, if the circumstances of the foreclosure were out of your control, your lender may be able to grant an exception. For more information about how a foreclosure may affect your eligibility for an FHA loan, click here.
- Can I qualify for an FHA loan if I’ve filed for bankruptcy?
If you are still paying on a Chapter 13 bankruptcy, and your payments have been satisfactorily made and verified for at least one year, you may qualify for an FHA loan. You will need to provide written explanation of the circumstances of the bankruptcy, have re-established good credit, have stable employment, and qualify financially for the loan. If you or your spouse filed for Chapter 7 bankruptcy, at least two years must have passed since the bankruptcy discharge date. As with Chapter 13 bankruptcy, you will need to provide written explanation of the circumstances of the bankruptcy, have re-established good credit, have stable employment, and qualify financially for the loan.
An FHA loan can be a great financing option for many home buyers. If you have more questions about FHA loans, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!