8 Things You Need To Know About FHA Loans

 In Different Types of Loans, First-Time Home Buyers, Qualifying for a Mortgage

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.

FHA Quick Reference Guide

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