The Federal Housing Administration (FHA), a government agency, allows borrowers to take advantage of a low down payment, reduced closing costs, relaxed lending standards — and insures your loan, which is offered by an FHA approved lender. Here are five facts you’ll want to know about FHA loans:
An FHA home loan allows a low down payment
Conventional lenders usually require a 20 percent down payment. FHA-approved lenders can offer an FHA loan with as little as 3.5 percent down. You still pay the FHA to insure your loan but the overall costs can be lower. And you can obtain the money for your down payment as a loan or gift from a family member, employer or charity. Most conventional lenders won’t allow that.
FHA loans are easier to qualify for
Borrowers with less-than-perfect credit can often qualify for an FHA home loan. Even if you have a bankruptcy in your history, you still have a shot at qualifying. In fact, your credit score can be as low as 500 and you may still qualify for a loan, within certain guidelines. And an FHA lender can finance multifamily homes, condos, as well as mobile and manufactured homes.
FHA home loans have lower interest rates
In addition to lower down payments, FHA-guaranteed loans generally have lower interest rates. Since the FHA doesn’t actually provide the financing or determine the interest rates of the loans it backs, the rate you pay for an FHA home loan will be negotiated with an FHA-approved lender.
FHA loans can help you avoid foreclosure
The Making Home Affordable program (MHA) helps borrowers who are suffering a financial setback. If you are in default on an existing mortgage, MHA may be able to help you reduce your loan payments and avoid foreclosure. There are also options to assist unemployed homeowners as well as homeowners who owe more on their mortgage than what the home is currently worth.
An FHA loan can help disaster victims
Disasters seem to be occurring with increasing frequency: floods, landslides, earthquakes, tornadoes and all the rest. The FHA Mortgage for Disaster Victims program provides 100 percent financing through approved lenders for the purchase or reconstruction of a home severely damaged or destroyed due to a disaster.