FHA Loans

What Are FHA Home Loans?

For first time home buyers, and some others, an FHA loan can be an ideal choice. The Federal Housing Administration insures FHA loans. While they do not issue them directly, they will provide insurance backing for borrowers if federally qualified lenders offer these loans. That means that, if the borrower defaults on the loan, the lender receives compensation from the federal government. It works much like an insurance claim, but instead of the lender paying the premium, the borrower does. From a borrowing aspect, this creates a sense of security to the lender. As a result, FHA loan requirements are a bit easier to meet.

Key benefits of FHA loans include:

• Easier lending requirements leading to more people qualifying for this type of loan than a conventional loan
• Lower interest rates, which means these loans typically cost less monthly and in the long-term
• Higher borrowing power as those buying a home can borrow as much as 95.5 percent of the home’s value (as of 2018)
• Lower down payment requirements, which are 3.5 percent as of 2018
• Lower credit score requirements, which borrowers available to lower income individuals with credit scores as low as 500

What Are FHA Mortgage Rates?

The benefit of these federally backed loans is the reduced risk they create for the lender. As a result, lenders are more willing to offer lower FHA mortgage rates to borrowers than they would conventional borrowers. When considering the purchase of a home, borrowers often seek out the lowest interest rate possible. FHA loans may be a key consideration. Like any type of loan, though, rates depend on the lender’s offering and the credit qualifications of the borrower.

Who Qualifies for These Loans?

This loan program aims to improve access to affordable homes by those who may not have a strong credit history or other requirements. These are set by the Federal Housing Administration. This is important FHA home loan information for borrowers. FHA home loan requirements include the following.

Credit Score Requirements

FHA loans do require individuals to have some credit history. However, unlike other loans, a lower credit score is often acceptable. Generally, lenders will offer these loans to those who have a credit score of 580 or higher. Some low-income individuals may qualify for a credit score as low as 500.

Down Payment Requirements

FHA loan requirements also include the need to have a down payment. That is, individuals must have the ability to put cash down on the purchase. Down payment requirements are only 3.5 percent, though. Conventional loans, by comparison, can require as much as 20 percent down.

Home Inspection Requirements

After working through the FHA loan application and bidding on a home, keep in mind the property must meet specific safety standards. The home inspection required by FHA is not necessarily the same as a traditional home inspection. The goal here is to ensure the home is safe for the buyer.

Other Property Requirements

Another consideration to keep in mind when creating an FHA loan application is the property itself. It must meet specific goals including:

• Be the primary residence of the home buyer (investment properties do not qualify)
• The homebuyer must remain in the home for at least 90 days (home flips do not qualify)
• The buyer must take the title of the home in his or her own name, in some cases, the name of a living trust at settlement may qualify

Home buyers should speak to their real estate agent about this FHA home loan information to ensure the home meets these qualifications. Borrowers should do this before filing an FHA home loan application.

Refinancing Options

Keep in mind that many people can refinance a current loan into an FHA loan. The FHA home loan requirements state that as much as 97.7 percent of the home’s current value can be refinanced into a new loan.

Income Requirements

Individuals seeking FHA home loans must also be able to afford the loan. However, there is no minimum or maximum income requirement. However, the lenders will need to verify a few things including that the borrower:

• Has at least two credit accounts established; this could be a car loan or a credit card
• Has no federal debt or judgments against them such as credit card accounts or tax-related debts
• Meets debt-to-income requirements; as of 2018, this means that the amount of debt the borrower has including the new loan is no more than 50 percent of your income.

Understanding FHA Loan Interest Rates and Costs

When a borrower fills out an FHA home loan application, we will discuss the goals he or she has. This includes the size of the loan desired. He or she will then provide a quote for current FHA loan interest rates. Home buyers should still compare several loan types to determine which offers the best possible rate.