Federal Housing Administration (FHA) loans, in existence since 1934, have been helping homeowners get a better deal on owning a home by offering low down payments, low closing costs, and lower qualifying credit.
What is an FHA Loan?
An FHA home loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration. The money for these loans comes from the lender, not the FHA. In addition to the purchase of a home, they can be used for refinancing or renovation of up to four living units, per HUD rules.
These types of loans were originally designed for low to moderate-income borrowers who were unable to make a large down payment. Recently, the U.S. Department of Housing and Urban Development (HUD) pushed loan amounts higher to help with the growing demand for loans above the conventional loan limits.
FHA loans allow someone to borrow up to 96.5% of the value of the home. The 3.5% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers.
What are the Benefits of an FHA Loan?
- Up to 3.5% down payment
- Lower credit scores accepted than most conventional loans
- Allows for higher debt-to-income (DTI) ratio
- Minimum reserves required
- Down payment can come in the form of a gift
Some Things to Consider:
- Upfront Mortgage Insurance (UFMIP) is required, and monthly Mortgage Insurance Premiums (MIP) are required for the life of the loan— increasing monthly payments
- Maximum loan amount varies by county
FHA loans may be more expensive than conventional loans for borrowers with a larger down payment and better credit. Borrowers who have smaller down payments and lower credit scores often find FHA loans to be their best option.
You can find your local FHA mortgage limit on the HUD website. To learn more about FHA loan options in your area, reach out to one of our knowledgeable Loan Officers across the country.
At Peoples Mortgage, it’s all about the people.