fha home loans

What Are FHA Home Loans?
FHA stands for the Federal Housing Administration, part of the U.S. Department of Housing and Urban Development. It was established back in the 1930s, when the Great Depression caused many people to default on their loans or to foreclose their homes.

FHA loans are designed to help people with lower credit scores or minimal down payment funds secure home mortgage loans. An FHA loan requires mortgage insurance, which gives enhanced protection to lenders when they take on these types of borrowers.

What Do I Need to Qualify for FHA Home Loans?
Whereas traditional home mortgage terms typically require a minimum credit score of 680, FHA loans will accept a 620 credit score with a 3.5% down payment. A higher down payment can counteract even lower credit scores; generally, you can likely secure an FHA loan with a score as low as 500 if you are able to put up a 20% down payment.

Additionally, you must be a lawful U.S. resident with steady employment of at least two years. It’s important to stick with your employer throughout the mortgage negotiation and home buying process, as any changes might delay or even stop the process altogether.

Where Do I Get FHA Home Loans?
Mortgage companies need to be approved by the Federal Housing Administration in order to offer FHA home loans, but other than that, the process is similar to any other type of mortgage deal. You can likely find a list of mortgage lenders who offer FHA loans in your area online and compare rates before making the initial contact.

So What’s the Catch?
Again, the difference with FHA loans is that they require the borrower to purchase additional mortgage insurance, which serves as protection for the lender. You will be required to pay an upfront mortgage insurance premium by the time you close, usually about 1.75% of the loan. Then, you will also need to pay an annual mortgage insurance premium every month, which varies from 0.7% to 1.1%.

FHA home loans are particularly attractive for first-time home buyers, as they allow you to get your foot in the homeowner’s door without a costly down payment or perfect credit. From there, you can continue to build your assets and your credit score and move from that starter home to your dream palace.