An FHA mortgage is a home loan that is insured by the Federal Housing Administration (FHA) and is part of the US Department of Housing and Urban Development (HUD). An FHA Mortgage is also known as a government loan.
An FHA mortgage is the easiest type of real estate mortgage loan to qualify for because it requires a low down payment and you can have less-than-perfect credit to qualify. Also, because FHA insures your mortgage, lenders are more willing to provide loans. FHA loans can be used for a home purchase or a refinance.
Advantages of FHA include:
- Seller can pay up to 6% of the sales price for closing cost and pre-paid items (insurance, taxes, etc.)
- 3.5% minimum down payment
- Leases on doubles, triplex and four-plex – 75% of rental can be used to qualify for income
- Down payment can be a gift
- Loans are assumable with credit approval
- Low competitive rates
A wonderful thing about this loan option is your down payment can be a gift. Furthermore, you do not have to be a first time buyer to qualify.
Eligibility for FHA Mortgage
Targeted credit score: 640-(some exceptions for lower scores)
FHA loan borrowers pay Private Mortgage Insurance (PMI) which protects the lender from a loss if the borrower defaults on the loan. PMI policies are usually required if you make a down payment that is less than 20% of the sales price of the home.
While the FHA does not have income or location restrictions, there are maximum mortgage limits that vary by state and county.
Do you have additional questions about eligibility for the FHA program? Click here