An FHA Home Loan may get you into a home with a low down payment. An FHA loan provides a government-insured loan with flexible loan options—one of the biggest hurdles first-time homebuyers face is saving for a sizable down payment on a home. Even experienced homeowners may need to plan for a long time for a new home purchase. Fortunately, FHA loans may help some buyers get into the home of their dreams with a lower down payment.
What is an FHA loan?
FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions that provide FHA loans fund home purchases while requiring a lower down payment. Buyers may get into a new home with as little as 3.5% down.
Using conventional loans, a lower down payment requires the borrower to get private mortgage insurance. This type of insurance protects the lender if the borrower cannot pay. The cost of PMI is added to the monthly payment until the loan amount reaches 20%. On the other hand, FHA loans do not require PMI because the U.S. government backs them. Additional scrutiny is often needed during the loan application process using an FHA loan.
What is required for an FHA Home Loan?
Many of the same documents are required for an FHA loan that any potential lender will want to see: employment history, appraisal, and debt-to-income ratio. A few additional stipulations are also attached to the FHA loan process. Buyers may have to bring 3.5% of the purchase price as a down payment, more if they have a credit score below 580. FHA loans are only available for the borrower’s primary residence.
Credit requirements may also be lower for FHA loans, given other factors demonstrating that the borrower can manage their money responsibly. Each lender looks at individual applications and may ask for additional documentation or explanations. They can often work with buyers with a lower credit score or shorter credit history than in other situations.
How Does An FHA Loan Work?
- Purchase your home with as little as a 3.5% down payment (compared to the 20% required on most loans).
- 30-, 25-, 20- and 15-year terms are all available with fixed rates.
- 5-year adjustable-rate mortgage available.
- Pay your mortgage off at any time without pre-payment penalties.
Have questions? Give us a call! One of our mortgage specialists would happily answer all your questions.
**Omni Lending LLC is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA, or the Federal Government.