Is An FHA Loan Right For Me?

Andrew Penner
The Mortgage Reports contributor

Often, FHA Loans Are Your Best Mortgage Option

With its low mortgage rates and reduced qualification standards, the FHA mortgage program can be an excellent way to help purchase a home, and today’s borrowers agree.

According to Ellie Mae, 1-in-4 home loans closed are now FHA-insured. This marks a five-point jump from just 12 months ago, and a huge increase from late-last decade.

The FHA mortgage is experiencing a resurgence.

As a unique home loan program with an array of benefits to borrowers, FHA loans make the opportunity of buying a home more attainable and more enticing.

Plus, FHA mortgage rates routinely “outprice” conventional ones.

FHA mortgages are not for everyone, but they can be a useful financing tool in many home purchase and refinance situations.

Verify your FHA loan eligibility (Sep 20th, 2021)

FHA Loans For First-Time Buyers

When buying their first home, few consumers have a twenty percent down payment to make from savings; and many do not want to.

Money is the bank is money to be used for emergencies and for household repairs. Owning a home costs more than just the mortgage payment, after all.

It’s scenarios such as this where FHA loans shine.

As one of its many benefits, an FHA loan allows a home buyer to put down as little as 3.5 percent on a purchase; and FHA loans are available in all 50 states.

Furthermore, the FHA’s required 3.5% down payment can be gifted, allowing family members, employers, or charitable organizations to contribute without harming your ability to qualify.

And, through a setup known as Seller Concessions, sellers, builders, or lenders are allowed to contribute to, or pay, your closing costs entirely.

FHA Loans For Buyers With Less-Than-Perfect Credit

In addition to allowing for a low down payment, another touted benefit of the FHA loan program is its lenient credit requirements.

Official FHA guidelines state that a borrower may be approved for an FHA-backed mortgage with a middle credit score of 500 or higher. This means that you can have a credit score below 500 and still get approved so long as your other two credit scores are 500 or higher.

Furthermore, in exception cases, the FHA will allow loans for borrowers with no credit scores whatsoever.

There’s a trade-off for having low credit scores, though.

The FHA 3.5% downpayment program is allowed for borrowers whose credit scores are 580 or higher only. Borrowers with credit scores below that benchmark are required to make a 10 percent downpayment, at minimum.

FHA Loans For Buyers With Bankruptcy Or Foreclosure

If your home was once foreclosed upon, or if you recently declared Chapter 7 or Chapter 13 bankruptcy, securing a conventional mortgage for your upcoming purchase or mortgage refinance may not possible.

Conventional mortgage guidelines can be strict regarding loans after a personal economic event.

However, by contrast, FHA loans can be more lenient.

With the FHA loan program, it’s possible to qualify for a mortgage just two years out of a bankruptcy, or three years out of foreclosure, once good credit is re-established.

And, in select circumstances, the FHA can get more aggressive than even that.

Via its Back to Work program, which is available to consumers for whom a bankruptcy, short sale, or foreclosure was the result of extenuating circumstances which have since been resolved, the waiting period to re-apply for a loan is reduced to just 12 months.

FHA Loans Homes That Require Renovation/Repaid

Unlike Fannie Mae and Freddie Mac, the FHA offers a true home renovation loan, a program known as the FHA 203k.

Via the FHA 203k loan, a home buyer or homeowner can roll the cost of a home renovations into its loan size, negating the need for a second, separate home equity loan; or the dual-closing process typically associated with a home construction loan.

FHA 203k loans come in two varieties.

The first type of FHA construction loan — the Streamlined 203k — is designed for less expensive renovations, and allows you to roll up to $35,000 of renovation costs into your mortgage.

The Streamline 203k is meant for smaller projects such as repainting and reflooring; and, replacing home appliances.

The second type of FHA construction loan is the Standard 203k.

With the Standard 203k, there is no specific borrowing limit and all type of home improvements are allowed. This can include foundation work, architectural or engineering projects, and full-room renovations.

What Are Today’s FHA Mortgage Rates?

FHA home loans can be useful to a variety of home buyers and existing home owners and, with mortgage rates low, they can be cost-effective as well.

Take a look at today’s real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Verify your FHA loan eligibility (Sep 20th, 2021)