FEDERAL HOUSING ADMINISTRATION
The Federal Housing Administration (FHA) helps U.S. citizens buy or refinance a home. FHA is part of the Housing and Urban Development (HUD) program. FHA does not lend money itself but ensures the home loan to help your lender give you a better deal with low down payments, easier credit qualifying, and lower closing costs. If you are looking to make the home you purchase a more energy efficient home, these costs can also be included in your FHA mortgage.
WHAT IS AN FHA LOAN?
Not all homebuyers can qualify for conventional home loans, so the FHA helps by insuring the loan. FHA does not lend the money, but rather, they promise to pay a portion of the loan if the homeowner/borrower is unable to pay. This makes it easier for lenders to give home loans to first-time homebuyers and homebuyers with less than perfect credit. HUD develops the eligibility requirements for borrowers and the underwriting procedures for the lenders. You begin by applying for a loan through an approved FHA lender, such as Essex Mortgage.
While FHA loans are great for first-time homebuyers, they are open to everyone. There is no income limitation because the FHA focuses more on a borrower’s ability to repay the loan. FHA considers your repayment history, job and income verification, and credit score. However, there are some FHA loan limitations, but ZIP codes determine these. Your credit score will determine how much your down payment will be. For example, if you have a credit score of 580 or higher, then the down payment could be as low as 3.5%, while a score lower than 580 may require a larger down payment.
BENEFITS OF AN FHA LOAN
- It is easier to qualify, even if you have a poor credit score as long as you have been working to correct old credit issues and debt repayment problems.
- FHA loans often have lower interest rates to help make the mortgage payment more affordable.
- FHA loans offer low down payment and lower closing costs, reduced mortgage insurance premiums, and other home buying costs.
If you have had a bankruptcy or foreclosure in the past, the does not mean you are excluded from an FHA loan. If you have worked to rebuild your payment history and credit history, you may still qualify.