What is an FHA loan?
An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). The purpose behind the FHA loan program is to increase access to homeownership for credit worthy individuals who might not otherwise qualify for a conventional home loan. It is important to understand that the FHA does not loan money to borrowers. Rather, it is insures mortgages made by lending institutions to individuals under FHA guidelines. Because these loans are insured, the qualifying requirements are generally less stringent.
What are the benefits of an FHA loan?
- Low down payment. Most FHA loans require only 3.5% down.
- Lower qualifying credit scores. In comparison to a low down payment conventional loan, FHA loans typically require a lower minimum credit score.
- Gift Funds are allowed. An FHA loan allows the borrower to be gifted 100% of the down-payment.
- Non-occupant co-borrowers are allowed. A co-borrower who is not living in the home (a parent, for example) can help the borrower to qualify.
- FHA loans are assumable. Under certain conditions, another party may assume your loan.
- Alternative credit sources allowed. Because FHA loans are geared towards first time home buyers, borrowers can sometimes use alternative forms of credit, such as utility bills, to establish credit history.
- Ability to finance home repairs. Under the FHA 203k program, a borrower can finance major or minor repairs in the loan.
- Easier to refinance. Borrowers can refinance through the FHA Streamline program, which allows borrowers to obtain lower rates without having to fully re-qualify or obtain an appraisal.
How do I know if I qualify?
In order to qualify for an FHA loan, the underwriter reviews a number of factors including, but not limited to, your debt-to-income ratios, assets, credit score, credit history, and stability of employment. The best way to find out if you qualify is to go through a pre-approval.
At All-Western Mortgage, we are direct-endorsement FHA approved lender. We would be happy to help you to determine if you qualify, or to answer any loan questions you may have. Call us at 702.277.4141 or fill out our “Ask a Mortgage Expert” contact form.