An FHA loan is a mortgage loan that is insured by the Federal Housing Administration, or FHA. This is one of the many loan options you can consider.
The FHA loan mortgage program was created to make home ownership accessible to more people. The FHA does not actually lend money; it reimburses FHA lenders when borrowers default. This reduces the lenders’ risk and makes them more willing to lend money.
Here are some things to consider if you’re looking into an FHA loan, including some of the requirements for an FHA loan and some tips for applying:
• FHA mortgage insurance — FHA insured loans require mortgage insurance to protect lenders in the event you are to default on the loan.
• Loan limits — There are limits to how much you can borrow based on the type of housing and where you are purchasing the home.
• Loan checklist — Prepare all the paperwork for the loan application, and be prepared to pay for property appraisal and credit report.
• Closing costs — each FHA office determines what a borrower is responsible for.
• FHA debt ratios — You must qualify according to FHA set debt-to-income ratios.
• FHA credit issues — The FHA will check your credit history.
Why an FHA loan? Curt, a mortgage banker, explains: “They allow for lower credit scores so there’s more flexible credit options with an FHA loan, so an FHA borrower would be one that doesn’t want to expend that much on a down payment, has possibly some credit issues or maybe not, and you’re also going to want to take into account the mortgage insurance that you need for that product so that has to be in your budget. But it can be a very good loan for some people who have a limited amount of down payment.”
—————————————-—————————————--
VIDEO TRANSCRIPT:
TINA: An FHA loan is a government-sponsored loan. It allows homeowners to put 3.5% down payment on their home.
CURT: They also allow for lower credit scores so there’s more flexible credit options with an FHA loan, so an FHA borrower would be one that doesn’t want to expend that much on a down payment, has possibly some credit issues or maybe not, and you’re also going to want to take into account the mortgage insurance that you need for that product so that has to be fit in your budget. But it can be a very good loan for some people who have a limited amount of down payment.