What is an FHA Loan?

Buying a home is exciting, however, figuring out the right home loan can be stressful. Home loans, called mortgages, come in numerous types. Choosing the right mortgage loan is very important, after all it is a major purchase in your life. To have a better idea of what loan works best for your needs, let’s dive into the FHA loan program.

What is an FHA loan?

The Federal Housing Administration (FHA) mortgage offers down payments as low as 3.5 percent.

The credit score and down payment amounts are just two requirements of FHA loans. You can qualify with a credit score as low as 500 with a 10% down payment unlike many conventional loans. Just keep in mind that the lower the credit score the higher the interest rate the borrowers will receive.

Majority of first-time home buyers don’t realize that the down payment can be obtained from a financial gift.

FHA lets borrower’s spend up to 57 percent of their income on monthly debt obligation, this includes credit cards, student loans, car loans, and mortgages. On the other hand, conventional mortgage guidelines tend to cap debt-to-income ratios at around 43 percent.

FHA offers several other loans programs, including:

• Home Equity Conversion Mortgage
• FHA 203k improvement loan
• FHA’s Energy Efficient Mortgage Program
• Section 245 (a) Loan

What was the purpose of the FHA?

Congress decided to create the Federal Housing Administration in 1934 which was amid the Great Depression. During that time, the housing industry was in crisis. There was an increase of foreclosure, loans were limited to 50% of a property’s market value. The government created these loans to stimulate the housing market and reduce lender risk which made it easier for borrowers to apply for home loans. This has helped the homeownership rate to increase overtime.

While an FHA loan may sound great, you’ll want to make sure this type of mortgage is right for you.

 

If you want a full team of mortgage professionals to help with your decision on what is the best loan options for you, we’re happy to help. To learn more about an FHA loan, please don’t hesitate to reach out to us, we look forward to hearing from you!