Four Facts About FHA Loans
Federal Housing Administration loans, more commonly referred to as FHA loans, offer a financing option for those with lower credit scores or limited funds for a down payment. For those who feel like owning a home was impossible due to financial circumstances, FHA loans may be a viable solution.
Below are four facts about FHA loans to help you better understand the process, stipulations, and differences as compared to conventional loans.
FHA loans require different qualifications than conventional loans.
Simply put, qualifying for an FHA loan is easier than qualifying for a conventional mortgage. The basic requirements for an FHA loan are:
- A credit score of 500 or higher
- Debt-to-income ratio of 50% or less
- 3.5% minimum down payment
- The home must be your primary residence and meet FHA's minimum property standards
You can finance different types of homes with an FHA loan.
This means that you can use an FHA loan to purchase a multifamily home (i.e. duplex), FHA-approved condos, or manufactured homes.
FHA loans require mortgage insurance.
This is to protect the lender from losing money should you default on your loan. Conventional loans require private mortgage insurance, but only if the buyer is making a down-payment that’s less than 20% (the same goes for refinancers who have less than 20% equity in their home.) However, all FHA loans require mortgage insurance no matter how much of a down-payment you provide.
If you’ve been involved in a disaster, an FHA loan may help.
Examples include wildfires, earthquakes, floods, and hurricanes. If your home was damaged or destroyed during a natural disaster and was in a presidentially declared disaster zone, the FHA 203(h) Mortgage Insurance for Disaster Victims Program may provide 100% financing for the reconstruction of your home. They’re only available for single-family homes or condos, and your application must be filed within one year of the disaster.
If you’d like to know more about FHA loans, check out this article by Nerdwallet.