What Is An FHA Loan?
An FHA loan is a mortgage that’s insured by the government. To be more specific, it’s insured by the Federal Housing Administration.
FHA loans are popular for two reasons:
- People with lower credit may be more likely to get approved for an FHA loan vs. conventional
- FHA loans typically require lower down payments
These two factors make these loans popular among first-time home buyers. These are often young professionals or families just getting started, so they don’t have a lot of credit history or finances for a conventional loan.
A few quick notes on FHA loans:
- They have fixed-rate terms for 15 or 30 years
- The loan must be for your primary residence
- Borrowers pay FHA mortgage insurance to help protect the lender from loss
As of 2019, most of the country has an upper limit of $314,827 for an FHA loan. Higher cost areas do have higher maximums though, with the highest being up to $726, 525. These maximums tend to go up each year due to inflation and overall cost of living increases.
What Do You Need For An FHA Loan?
Your lender will determine if you qualify for an FHA loan. They make that decision on several factors, including (but not limited to) the following:
Employment – Do you have at least 2 years of steady employment history? Lenders like to see a steady source of income.
Income – Steady work is great, but how much you make also plays a role. You need to make enough money to cover the bills.
Debt – How much debt do you have? What are your monthly bills going towards debt? A lender doesn’t want to see a large percentage of your income going towards other debts.
Down Payment – At least 3.5% of the house. If your credit score is less than 580, you’ll need closer to 10%. You’ll also need to make an upfront FHA mortgage insurance premium, which is 2.25% of the total loan.
Minimum Credit Score – 500.
To some, these numbers may sound high. They’re actually generous when compared to a conventional mortgage. For example, conventional mortgages usually require a credit score of at least 620.
So how do you start the process of getting your mortgage? When you contact your loan officer or lender, they’ll help guide you through collecting everything you’ll need to get the loan.
Where Do You Get An FHA Loan?
The best place to learn more about your FHA loan options is a qualified loan officer. Even though the mortgage is backed by the federal government, it is still executed through a qualified lender. Your loan officer will help you understand your options and find the right type of loan for you.
For example, we’ve had people come in asking about an FHA loan. After talking to them for a few minutes and understanding their current financial situation, we suggested that they consider another type of loan that would be better for them in the long term.
Other times it’s the opposite. Customers are planning on taking out a conventional mortgage, but we help them get into an FHA loan instead because it made more sense.
Have questions or need more info? Contact us today! We’d love to sit down for a few minutes for a free consultation on which type of mortgage we recommend.
*Total Quality Lending is not affiliated with or acting on behalf of or at the direction of FHA or any government agency.