Some benefits of FHA loans are:
- Low down payments
- Easy credit qualifying
What does FHA have for you?
Buying your first home?
FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price and it’s now available on 1-4 unit properties.
Want to make your home more energy efficient?
You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.
FHA loans have been helping people become homeowners since 1934. How do we do it?
The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.
FHA allows a buyer to purchase a home with as little as 3.5% down. They tend to be more lenient in areas such as credit, funds to close and co-borrowers.
Most loans use a method of analyzing credit called credit scoring in the underwriting process. Studies have demonstrated a direct relationship between low credit scores and higher mortgage delinquency rates. As a result, many lenders have established minimum credit scores at which they will accept loans. FHA does not have specific credit score requirements. Although a high credit score may assist in getting the mortgage approved, a low score is not an automatic cause for denial. If the credit scores are low, then it is up to the borrower to demonstrate his/her ability and willingness to pay the loan back. This allows the borrower to explain the circumstances surrounding the credit difficulties and have that explanation considered in the underwriting process.
The underwriter on an FHA loan will review the credit and payment history of a customer concentrating on the most recent 12 to 24 months. If the customer has had a good payment record over the past 12 to 24 months they can often get approved for a mortgage even when Conventional financing has turned them down. An experienced loan officer can help the customer clearly tell their story and will often make suggestions as to how to make the file more acceptable to FHA. Because of FHA’s leniency, some borrowers with past credit problems elect to use FHA for loans when they have a substantial down payment rather than getting a higher interest rate conventional loan. FHA tends to be more flexible than Conventional financing in the money needed to purchase the home.
In an FHA mortgage, the customer must put at least 3.5% of the sales price into the transaction. Some of this money may be used for down payment and the rest for closing costs. Keep in mind, however, that the total cost to close on an FHA is commonly over the 3.5%. With the down payment, closing costs, money to establish escrows for taxes and insurance plus interest to finish out the month of closing, the total costs can be closer to 6 or 8% of the sales price.
The interest rate that you select will also have a bearing on the total costs. If you select a lower rate so that you can reduce your payment, you may end up paying additional money towards “points”. At the same time if you are comfortable with a slightly higher payment you may find a lender that is willing to reduce the costs to close in favor of a higher interest rate.
FHA allows the borrower to get the funds necessary to close from several sources. They include such areas as personal savings, gifts, grants, loans from retirement accounts and seller contributions.