What is an FHA Loan?
FHA-insured loans are mortgages that are backed by the Federal Housing Administration. If you’re interested in getting a government-insured loan, this is probably your best bet, as it’s one of the more popular loan options. Here are some things you should know about this type of loan to help you decide if it’s right for you.
How FHA Loans Work
FHA loans have been around for nearly a century. They were designed with low- and moderate-income earners in mind. Because of that, if you qualify for one of these loans, you can enjoy low interest rates and even smaller closing costs.
Because the FHA guarantees these loans, they are less risky than conventional loans. Typically, you cannot use an FHA loan for an investment property or a secondary residence. Aside from that, you can purchase a wide variety of homes, including properties of one to four units.
One of the reasons that FHA loans are so attractive is that you can purchase a home with a down payment that’s as low as 3.5% of the purchase price. As with other types of government-insured loans, you will have to pay for mortgage insurance. This will raise your monthly payments slightly.
When it comes to looking for your lender, you won’t be able to go with just anyone if you are looking for an FHA loan. You must choose an FHA-approved lender.
Qualifying for an FHA Loan
As usual, you can expect different requirements based on the individual lender. You’ll typically need a credit score of at least 580. This is a much lower requirement compared to conventional loans. You will want a higher credit score of at least 600 to purchase a house with a smaller down payment.
If you’ve experienced bankruptcy or foreclosure in the past, that won’t stop you from qualifying for an FHA loan. However, you must be at least two years removed from declaring bankruptcy and at least three years removed from foreclosures. It’s important that you’ve spent your time since then building up your credit. You cannot be delinquent on your income taxes or federal student loans to get an FHA loan.
Employment history is an important part of qualifying for an FHA loan. You usually must have at least two years of steady work experience at the same employer. If you are self-employed, you’ll need to show that your business has been profitable for at least two years, using tax returns and profit and loss statements as evidence. Some of the other basic qualifications include being a U.S. citizen or legal resident of the U.S., having a valid Social Security number, and being the appropriate age to sign a mortgage based on your state laws.
Learn More About FHA-Insured Loans
Do you want to learn more about how you can qualify for an FHA loan and use it to finance your home purchase? Contact the Carolina Mortgage Team at Revolution Mortgage. We take pride in helping borrowers just like you understand the first-time homebuying process.