8 Things You Need To Know About FHA Loans
FHA loans are a type of government loan that can be used to purchase or refinance a primary residence (a house you intend to live in).
Here are some things that every home buyer needs to know about FHA loans:
Eligibility and Down Payments for FHA Loans
- Anyone is eligible for an FHA loan. They are not just for first-time home buyers, and they are not just for people who don’t earn a lot of money. There is no maximum amount that a borrower can earn and still be able to qualify for an FHA loan.
- FHA loans only require 3.5% down.
- The down payment for an FHA loan can come from a relative of the buyer. This is a very common way for home buyers to get the down payment for the house they want to buy. The relative can either give the money to the borrower as a gift, or they can lend the money to them.
Qualifying and Closing Costs
- FHA loans allow a non-occupying co-borrower to help a borrower qualify for the mortgage. A non-occupying co-borrower does not have to live in the house, but they do have to be a relative of the borrower. The most common example of a non-occupying co-borrower is a parent who helps their children qualify for the loan by co-signing for them.
- If the borrower does not have enough money for the closing costs, the seller is allowed to pay their closing costs for them.
Interest Rates, Waiting Periods, and Credit Scores
- FHA loans have the same interest rate for everyone whose credit score is 660 or higher. This makes them a much better option for most people with a lower credit score because conventional loans (the most common type of mortgage) require a score of 740 to get the cheapest interest rate.
- FHA loans have shorter waiting periods after bankruptcies, foreclosures, and short sales than conventional loans do. The waiting period after a bankruptcy is only 2 years, and the waiting period after a foreclosure or a short sale is only 3 years.
- You can get an FHA loan with a credit score as low as 580. Conventional loans generally require a credit score of at least 620.