All About FHA Loans
Attractive features of FHA loans may include lower closing costs and easier credit qualifying.
FHA Loans are insured by the Federal Housing Administration, which means lenders can offer a better deal with lower down payment requirements, lower closing costs and easier credit qualifying than with other mortgages. These features make the FHA loan an attractive option for first time buyers. FHA financing is also available for mobile and manufactured homes.
What you should know before you apply:
- Credit Score: The minimum credit score required by the FHA is 500, and credit scores of 580 or higher are generally eligible for the best rates.
- Minimum Downpayment: The FHA requires a downpayment of 3.5% of the home purchase price for most borrowers.
- Closing Costs May Be Covered: The FHA allows home sellers, builders and lenders to pay some of the borrower's closing costs, such as the appraisal, credit report or title expenses. If paid by the lender, a higher interest rate may be charged.
- Lenders Must Be FHA-Approved: Because costs, services and underwriting standards are different for each lender, not all offer the same interest rates and costs, even on the same FHA loan.
- Mortgage Insurance: Borrowers are required to pay two mortgage insurance premiums on all FHA loans:
- The Upfront Premium, which is paid when the borrower gets the loan and can be financed as part of the loan amount
- The Annual Premium, which is paid monthly and varies based on the length of the loan, the amount borrowed and the initial loan-to-value ratio.