FHA Loans

An FHA loan is a mortgage insured by the Federal Housing Administration. There is a common misconception that FHA loans are for first time homebuyers, but that is not true. You can purchase a home with FHA financing whether it is your first time or your 50th. FHA Loans are VERY popular because it allows only a 3.5% down payment ($100,000 house means a $3,500 down payment). FHA also has much less stringent underwriting guidelines. Normally, a person will qualify for an FHA loan before any other type of loan. It allows for a much higher debt to income ratio and can approve buyers with a rougher credit history. We can prequalify buyers with credit scores as low as 580 for an FHA loan. There are many banks and credit unions who do not handle FHA loans, so even if you have been denied elsewhere that does not mean you cannot be approved with FHA financing. 

So what is the catch? The catch with FHA is that it has permanent monthly mortgage insurance. Mortgage Insurance is something that FHA collects which allows them to help buyers without a large down payment and less than perfect credit. Basically, it is another charge that is added to your monthly payment. Both USDA and Conventional loans can also have mortgage insurance, so it's not all that bad.  No matter how long you own your house or how much you owe, your mortgage insurance will never go away with an FHA loan (unless you pay off your loan or refinance). But with less than perfect credit, an FHA loan will typically offer a lower monthly payment than a Conventional loan. 

To summarize: FHA requires a 3.5% down payment and has the most relaxed underwriting guidelines out of all the loan programs. The bad is that the monthly mortgage insurance is permanent. An FHA loan is perfect for someone with less than perfect credit or for someone without a lot of money to put down. It may be the most commonly used financing for first time home buyers for these reasons. 


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