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FHA Loans

FHA Loans

A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other lender that is approved by the agency. Government-backed FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than is usually required. FHA loans can help low- to moderate-income families attain homeownership, and they are particularly popular with first-time homebuyers.

FHA loans usually have less stringent requirements and are easier to qualify for than conventional loans. Borrowers with a minimum credit score of 580 are eligible for an FHA loan with just a 3.5% down payment, while borrowers with a credit score of 500 to 579 may qualify for an FHA loan with a 10% down payment. A borrower’s debt-to-income (DTI) ratio must be 50% or less to qualify for an FHA loan, and borrowers with DTIs of 43% or less are in the best position to qualify for a FHA loan.
Mortgage insurance is required on FHA loans regardless of the down payment amount, but the premium will vary based on the size of the down payment. Additionally, borrowers who make a down payment of less than 10% pay FHA mortgage insurance premiums for the life of the loan, while those who put a down payment of 10% or more pay premiums for 11 years.
It’s important to understand when you get an FHA loan, you have to live in the house as your primary home. Investment properties and homes that will be flipped (sold within 90 days of a prior sale) aren’t eligible for FHA loans. Home appraisals are also more stringent with FHA appraisals than with conventional loans; not only is the property's value assessed, it’s also thoroughly checked for safety, soundness of construction and adherence to local code restrictions.