If you are looking to buy a home, but worry that your low credit rating or debt to income ratio may stand in the way, you may be eligible for an FHA loan. Although there are still limits to how much you can borrow, there are no income requirements, and FHA loans require a lower down payment. Since 1934, FHA loans have made it easier for all types of people, first-time homeowners and senior citizens to own homes and foster the economy. As part of the U.S. Department of Housing and Urban Development, an FHA loan helps improve housing standards, stabilizes the mortgage market and protects private lenders from default losses.
Unlike mortgage loans, an FHA loan
is a type of mortgage insurance provided by the Federal Housing Administration (FHA), which offers to pay off the loan if the borrower defaults. This makes lenders more likely to disperse larger mortgage loans. An FHA loan
- Down payments as low as 3.5% of the asking price
- Closing costs included in the loan
- The ability to add home repair costs to the loan for remodeling
- Insured financing for modular and manufactured homes
Annual and up-front mortgage insurance premiums are required for an FHA loan, and maximum loan amounts vary by state and county. The insurance premiums paid by each borrower will be used to reimburse the lender (not the borrower) should the borrower default on the loan and the lender forecloses the home. Homebuyer education courses or minimum credit score requirements may apply. Down payment assistance may or may not be available in your area.