FHA Loans

An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.

Why people get FHA loans

Because of that insurance, lenders can offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements. The FHA is an agency within the U.S. Department of Housing and Urban Development.

Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5%, the borrower needs a credit score of 580 or higher.

Those with credit scores between 530 and 579 must make down payments of at least 10%.

FHA borrowers can use their own savings or a gift from a family member to make the down payment.

The FHA allows home sellers to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a seller might offer to pay closing costs as an incentive for the borrower to buy their home.

Two mortgage insurance premiums are required on all FHA loans: The upfront premium is a percentage of the loan amount. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount.

The 2nd is called the annual premium, although it is paid monthly. It varies based on the length of the loan, the amount borrowed and the initial loan-to-value ratio.

FHA 203K Loan

The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The advantage of this type of loan, called a 203(k), is that the loan amount is based not on the current appraised value of the home but on the projected value after the repairs are completed. A “streamlined” 203(k) allows the borrower to finance up to $35,000 in nonstructural repairs, such as painting and replacing cabinets or fixtures.