Looking for a home loan with a lower down payment and less-demanding loan qualification requirements? You might be the perfect candidate for an FHA loan, a popular type of mortgage that is used by borrowers all over the United States. “FHA” stands for the Federal Housing Administration. FHA loans are insured by that agency. Homeowners with FHA loans pay for mortgage insurance, which covers the increased risk that the agency takes in extending a loan to a borrower with less-than-perfect credit or less collateral to put down on the home. FHA loans are offered at attractive interest rates, which makes them even more desirable to buyers.
What credit score do you need to qualify for an FHA loan? That depends on what type of loan you are seeking. To qualify for a mortgage with a down payment of 3.5% (the minimum required), buyers must have at least a 580 FICO score. If you have a credit score higher than 500 but lower than 579, you have to come up with a down payment of at least 10%. Consumers with credit scores lower than 500 generally cannot qualify for an FHA loan and should take measures to improve their credit before going forward with the homebuying process, although under special circumstances the FHA will sometimes consider the applications of buyers with exceptional situations.
Buyers with FHA loans are allowed to have closing costs covered by others. Builders, current homeowners, or lenders are all examples of those who might pay closing costs. Some builders will use payment of closing costs as an incentive to get buyers attracted to their homes. Lenders may charge additional interest for covering closing costs.
Speaking of lenders, all lenders offering FHA loans must be approved by the FHA. The FHA does not process loans itself; rather, individual lenders do so. Buyers are encouraged to shop around for their lender, because different lenders will charge different interest rates for FHA loans - sometimes even different rates on the same loan. It’s a matter of due diligence for homeowners to do their research.
There are two mortgage insurance premiums required by FHA loans. The first one is upfront, and is 1.75% of the loan amount. That’s $1,750 per $100,000 borrowed. This 1.75% upfront premium can be paid or rolled into the loan. The second part, the annual premium, is paid monthly. What percentage that premium is depends on the length of the loan, the initial down payment, and the LTV, or loan-to-value ratio.
If you feel like an FHA loan might be right for you and your family, start the process today by letting us help you get in touch with a few qualified lenders and starting the process of getting pre-approved! Your dreams of home-ownership may be closer than you think!
We recommend the following lenders:
Jason Bryan
TowneBank Mortgage
(571) 748-3158
Andrea Wine
McLean Mortgage Corportation
awine@mcleanmortgage.com
(703) 738-0948
