FHA Loan

A Federal Housing Administration commonly called an FHA loan, is a mortgage loan insured by the Federal Government. While the government insures these loans, they are underwritten and provided by third-party mortgage providers. FHA loans are popular with individuals with less than stellar credit, little savings, or first-time homebuyers. This is likely due to the looser financial requirements needed to qualify for an FHA loan.

In addition to this, FHA loans can be offered to borrowers who have filed for bankruptcy two years prior. They can also be offered to borrowers who have undergone foreclosure three years prior. In both cases, lenders might have additional requirements or exceptions on the waiting period depending on the lender and circumstances.

There are some stipulations to FHA loans. Borrowers must have verifiable employment history for the past two years with payslips. The residence must be the borrower’s primary residence. The property needs to be approved by an FHA approved appraiser and meet certain guidelines. There is also a certain debt to income ratio requirement as well. Usually, a DTI ratio of up to 50% is considered acceptable.

Typically FICO scores affect FHA loans as well. Borrowers with a score of 500 to 579 are required to put 10% as a downpayment. Borrowers with a score above 580 are required to put 3.5% as a downpayment on a property.

The terms for an FHA loan are similar to conventional mortgages, with 15-year and 30-year mortgages available. Typically they are fixed-rate mortgages.

While FHA loans are unavailable for international investors, they can be beneficial to first-time homebuyers, depending on their conditions.