FHA Loans Explained
Requirements and Benefits

If you’re starting out on the home buying journey, you might have heard of FHA loans, but what does “FHA” stand for and why should you consider this type of loan? A Federal Housing Administration (FHA) loan might be a good option if you have debt or a lower credit score. You might even be able to get an FHA loan with a bankruptcy or other financial issue on your record.

Let’s take a closer look at FHA home loans, their requirements and whether an FHA loan might be right for you.

What Is An FHA Loan?

FHA loans are backed by the Federal Housing Administration, an agency under the jurisdiction of the U.S. Department of Housing and Urban Development (HUD). FHA loans are insured by the FHA, which simply means that the owners of your mortgage are protected against loss if you default on your loan.

How Do FHA Loans Work?

Credit Score, Maximum Amounts And Down Payments For FHA Loans

Credit ScoreMaximum Loan AmountMinimum Down Payment
580+96.5% of home value3.5% of purchase price
500 – 57990% of home value10% of purchase price

How FHA Loans Can Be A Good Option

Low down payment and lenient credit score requirements often make FHA loans attractive for home buyers, especially first-time home buyers.

Here are some benefits of FHA loans:

  • Credit score requirements are low compared to most other loans.
  • Your lender can accept a low down payment.
  • Qualifying for an FHA loan can still be possible even if you have a bankruptcy or other financial issues in your financial history.
  • FHA closing costs can often be rolled into your loan.

FHA Loan FAQs

Still looking to learn more about FHA loans? Here are the answers to a few of the most frequently asked questions.

An FHA loan might be the right loan option for you if you’re a first-time home buyer or having trouble getting a loan due to your financial history. However, it’s always important to weigh the pros and cons of any loan option before you fully commit to one. Make sure you’re aware of all other costs associated with FHA loans and that you’re financially prepared to pay them.

Once you choose the mortgage lender you’d like to work with, you can apply for an FHA loan. After you provide all of the necessary documents (tax returns, pay stubs, bank statements, etc.) to your lender, they’ll submit your application and work on a loan estimate.

As with every loan, borrowers must meet certain requirements to qualify for an FHA loan. Borrowers must prove they have a steady employment history by showing pay stubs, W-2s, federal tax returns and bank statements. In addition:

  • The home must be appraised by an FHA approved appraiser.
  • The home has to be a primary residence.
  • You must occupy the property within 60 days of closing.
  • An FHA inspection is required, and the inspection must report whether the property meets minimum property standards.

FHA loans are designed to make the path to homeownership easier. Thanks to an FHA loan’s low minimum credit score requirement, lenient down payment requirement and numerous loan programs, prospective homeowners should find it easier to get an FHA loan than a conventional loan.

You’ll also need to make a down payment, pay mortgage insurance and have a minimum credit score.

In Conclusion

If you’re in the market for a loan with lenient credit score and DTI requirements and don’t have a lot to put toward a down payment, an FHA loan might be right for you. If you’re ready to begin your home buying journey, start your mortgage pre-approval online with Carol The Closer.