FHA Loan
Loan Type

FHA Loan

The home buying process can be overwhelming and stressful, especially if you’re buying your first home (or if your financial circumstances make it more difficult to get an affordable loan). For many home buyers, getting a loan insured by the Federal Housing Administration (FHA) can be extremely helpful in not only securing the necessary financing to buy but also achieving the dream of owning a home (even while facing tough financial situations). FHA loans allow lenders to make home buyers better deals, resulting in lower down payments, lower closing costs, and easier credit qualifying. Here, we’ll go over the ins and outs of FHA loans, including what they are, who qualifies, and what the process of securing one looks like.

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What Is the FHA?

First, it’s important to understand the FHA and its function. The FHA, or the Federal Housing Administration, is a part of the U.S. Department of Housing and Urban Development. Created in 1934 in response to the housing crisis caused by the Great Depression, the FHA is dedicated to helping more people become homeowners.

The FHA was created to help stop an increase in foreclosures and make owning a home more affordable for Americans. The FHA insures mortgages for up to 80% of a home’s value (up from the 50 to 60% that was previously the norm for home loans). This makes loaning money to home buyers less risky for lenders and, in turn, helps them to offer more and better mortgages to future homeowners.

Although the FHA loan was created decades ago, securing an FHA loan is still a great (and affordable!) option for many prospective homeowners.

What Is an FHA Loan?

An FHA mortgage is a home loan that is backed by the Federal Housing Administration. Because this type of loan is insured by the FHA, lenders such as private mortgage companies, banks, and credit unions can offer better deals and terms to applicants who have low credit and low savings.

Often, FHA loans are an option for those who may not otherwise qualify for a conventional home loan, making them a popular choice for first-time home buyers or those with specific financial challenges. However, FHA loans can only be issued by FHA-approved lenders and require specific circumstances to qualify.

Differences Between FHA & Conventional Loans

FHA loans differ from conventional loans in many ways. Most FHA loans require less money down from the borrower, allow a higher debt-to-income ratio, and require lower credit scores to qualify. Compared to conventional loans, FHA rules are also more flexible as they pertain to financial gifts for down payments. In addition, many FHA home loans can even sometimes result in lower mortgage payments.

Despite all the benefits of FHA loans, however, there are some drawbacks you should be aware of. FHA loans can require closing costs that typically aren’t required by conventional loans. They also are only available for certain property types and are subject to loan amount restrictions (based on where the property is located). In addition, FHA loans also require mortgage insurance built into every loan, which means borrowers could end up paying for mortgage insurance for much longer than those who choose conventional loans.

Types of FHA Loans

FHA loans come in a variety of loan types, ranging from standard loans to loans that are tailored to meet very specific needs. Some common FHA loan types include:

  • Basic Home Mortgage 203(b)

    For purchasing or refinancing a primary residence

  • 203(k) Rehab Mortgage

    For financing homes that need work done, a.k.a. “fixer uppers”

  • Construction Loan

    For buying property and then building a new construction home

  • Title 1 Property Improvement Loan

    For financing home improvements and supplementing 203(k) rehab mortgages

  • Energy Efficient Mortgage

    For financing energy improvements to a home

FHA Loan Requirements & Process

In order to receive approval for an FHA loan, you’ll need to first meet certain requirements. These include: 

  • Minimum of 3.5% down payment, possibly more (depending on your credit score)
  • Credit score of 550 or higher (though other lenders will likely require higher scores!)
  • Debt-to-income ratio of less than 50% of your pretax income
  • Property approval ensuring that the property meets the FHA’s minimum property requirements via an FHA-specific appraisal
  • Mortgage insurance, which is built into the loan but includes an upfront mortgage insurance payment

Although the FHA insures these types of loans, it does not regulate them in terms of requirements, interest rates, and fees. So it’s important to consider that every FHA-approved lender may have its own approval process, rates, and fees. This means you’ll still want to comparison shop to get the best loan for your needs. 

The process of getting an FHA loan has changed over time, despite the fact that the minimum requirements to be approved for an FHA loan have not. This is because FHA lenders can set their own requirements for loans and recently have begun to favor applicants with higher credit scores and higher down payments. When looking to get an FHA loan, be sure to compare loan terms from multiple lenders to assess the current landscape of lending requirements. 

Benefits of Choosing Us as Your Lender

Benefits of choosing The Home Loan Expert to finance your FHA loan include:

  • Lower interest rates than most conventional loans
  • Easier qualifying terms than conventional loans
  • Down payments as low as $0
  • Taking advantage of down payment assistance programs
  • Ability to finance condos, single-family homes, manufactured homes, and multifamily (1-4) units
  • Qualifying even if you’ve had financial issues or bankruptcy in the past
  • We accept credit scores as low as 550

Let The Home Loan Expert Help!

Buying a home is an involved process that takes time, effort, and thoughtfulness. These factors are true for all home loans, but especially for FHA-backed loans, since borrowers and the property to be financed must meet specific requirements.

For anyone considering an FHA loan, having the support of experienced loan experts will be extremely helpful. At The Home Loan Expert, we can walk you through the process of finding, applying, and getting approved for an FHA loan. Our team can ensure that you and your future home meet all the necessary criteria of FHA-insured loan while helping you get a better understanding of the process.

With our easy-to-use mortgage calculator, you can easily get an idea of the various loan options available to you. And our team is ready to help when you’re ready to take the next step! Contact us to see how easy owning a home can be.

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