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FHA Home Loan
Since the mortgage lending industry was turned upside-down in 2008, the FHA home loan has been one of the go-to products for home buyers and lenders. FHA stands for Federal Housing and Administration and it falls under the umbrella of Housing and Urban Development better known as HUD. The FHA loan has helped a lot of people obtain a home loan who otherwise wouldn't have been approved. Like other government loan types, FHA does not lend the money; instead they insure the loans against default to the private lenders who loan the money. Since they are inevitably responsible for the loan, th FHA sets the standards and criteria.
The minimum credit score for a FHA loan is 580 for 3.5% and 500 with 10% down. However, most lenders have their own minimum score criteria which is usually between 620 or 640. Larger lenders such as PRMI that actually service their loans will go to the minimums that are allowed. There are other flexible credit features such as a borrower only has to be 2 years removed from bankruptcy and 3 years removed from foreclosure to qualify. It is not uncommon to see loans approved with debt-to-income ratios as high as 45% or more.
The FHA Home Loan only requires 3.5% down on home purchases. This is a really important feature. Buyers often have trouble coming up with 20% down, but 3.5% is usually doable. The down payment can be the borrower’s own money or they can even receive a gift from a family member or close acquaintance for the amount. The main thing is that it cannot be a loan. There are even some states or cities that offer down payment assistance which is also acceptable.
The FHA loan does require mortgage insurance but recent changes have made it much more affordable. The current rate for the upfront mortgage insurance is 1.75%. The upfront has minimal impact on the monthly payment because it is rolled into the loan. The monthly rate is currently .85% and has a bigger impact on the payment. This is the same principal of the USDA Home Loan.