WHAT IS AN FHA LOAN
An FHA loan is a type of mortgage in the United States insured by the Federal Housing Administration (FHA), a government agency created in 1934. The FHA’s insurance helps protect lenders if borrowers can’t make their payments, making it easier for people to get approved for a mortgage. This is especially helpful for those who might not meet the stricter requirements of conventional loans.
How to do FHA Loans Work
FHA loans allow homebuyers to borrow a significant portion of a home’s value based on their credit score. If your credit score is 580 or higher, you can borrow up to 96.5% of the home’s value, which means you only need a 3.5% down payment. Those with credit scores between 500 and 579 might still qualify for an FHA loan, but you’ll need to make a 10% down payment. Keep in mind that many lenders set their credit score requirements, but First Vision Real Estate requires a minimum score of 580 for FHA loans.
While FHA loans offer the advantage of lower down payments and more flexible credit requirements compared to other types of mortgages, they do come with a cost. You’ll need to pay a mortgage insurance premium, which is required as part of the loan.
Why FHA Loans Could Be The Perfect Fit For You
- Low Down Payments: You must be 3.5% down with a credit score of 580 or higher.
- Flexible Credit Requirements: It can be accessible to everyone, especially those with lower credit scores.
- Competitive Interest Rates: It often offers lower interest rates than other loan options.
- Assumable Loans: You can quickly transfer it to a new buyer with favorable terms
- Limited Savings: Very ideal for you if you don’t have saved enough for a down payment.
- Credit Building: Suitable if you are working to improve your credit.
- Primary Residence: If you plan to live in the home as your primary residence, then the FHA Loan is perfect.
- First-Time Homebuyer – A wise choice for those entering the housing market.
FHA Loan Requirements
Here is a list of FHA Loan Requirements that First Vision Real Estate requires:
Credit Score:
580 or Higher: Qualify with a 3.5% down payment.
500 to 579: Qualify with a 10% down payment.
Down Payment:
Minimum: 3.5% if your credit score is 580+
10% if your credit score is between 500-579.
Employment History: Must at least have two years of steady employment & proof of income or provide pay stubs, W-2s, or tax returns.
An FHA-approved appraiser must appraise the home you’re looking to buy.
FHA loans are only available for your primary residence, so they can’t be used for an investment property or a second home.
You’re required to move into the property within 60 days of closing.
An inspection is also required, and the report must confirm that the home meets minimum property standards.
FHA Loan Down Payments
Your down payment is the portion of the home’s purchase price that you pay upfront. With an FHA loan, the minimum down payment you’ll need depends on your credit score, which ranges from 300 to 850 and reflects your creditworthiness.
If your credit score is 580 or higher for FHA loans, you must make a minimum down payment of 3.5%. If your credit score falls between 500 and 579, you can still qualify, but you’ll need to make a larger down payment of at least 10%. For example, First Vision Real Estate requires a minimum credit score of 580 for our FHA loans. You can use our mortgage calculator here on our website to help you estimate your monthly payments and see how different down payment amounts affect them.
It’s also important to note that FHA loans allow you to use gift assistance for your down payment. However, this must be thoroughly documented to ensure the money is truly a gift, not a loan that must be repaid.
FHA Loans Credit Score
– The types of credit you hold (such as credit cards, loans, etc.)
– Your credit utilization, or the amount of available credit you’re using
– Your history of on-time bill payments
– The total amount you owe on your credit cards
– The amount of new or recent credit you’ve acquired
FHA Interest Rate
FHA interest rates can often be competitive with conventional mortgage rates. The government backing helps lenders offer you a lower rate. The exact rate you get will depend on several factors, like current national mortgage rates, your income and credit score, how much you plan to borrow, your down payment amount, and your debt-to-income ratio.