They are mortgage loans that are fully insured by the Federal Housing Administration and designed to assist buyers with smaller down payments and less then perfect credit an opportunity to own a home.
They allow banks to issue loans to buyers who may be of slightly higher risk without much risk or capital requirements.
Not only does the FHA give borrowers an opportunity to buy a home through a licensed FHA lender, they also offer a program called a 203k loan for repairs. This type of FHA loan is for repairing a home. In the same sense that the standard FHA loan can allow borrowers with less cash and low credit scores to qualify for a mortgage, the 203K gives individuals in similar financial circumstances an option to repair their existing home.
FHA loans are typically referred to as a "first-time home buyer" loan, because the looser requirements often fit that of the first time homebuyer. In cases where an individual does not qualify for a conventional mortgage the FHA loan option is often a great solution. First-time home buyers often fall into this category of buyer.
It is often overlooked by many lenders, but FHA loans can be used by borrowers a second time as long as the new home is going to be the primary residence. Also. be aware that FHA loans can be used for both single and multi-family homes.
Program high-lites include low minimum down payments (As low as 3.5%), reasonable credit requirements (Down to 580), and flexible household income requirements. If a buyer does happen to have less than a 580 credit score they may still qualify for the program but the down payment may be a bit higher at 10% down.
Generally, those with credit scores below 500 are ineligible. However, FHA lenders can make certain allowances depending on the individual's circumstances such as insufficient credit.
One of the other benefits of the FHA loan is that the borrower is able to to accept a cash gift from a family member to use as part of the down payment and even grants or monies from local payment assistance programs.
You will want to speak with a mortgage professional as everyone's situation is unique.
Here are some frequently asked questions:
Borrowers MAY be able to accept a gift from a family member (if properly sourced) and their credit score allows for it.
No. FHA loans can be used by first-time homebuyers and second time homebuyers. FHA loans can be an excellent loan option when it is time to buy your next home.
Absolutely not. Many people with great jobs and good credit choose to finance with an FHA loan. Depending on what the borrowers financial goals are FHA loans can be a perfect fit when considering your options.