If you don’t have enough cash for a down payment on a home or have less-than-ideal credit, a Federal Housing Administration (FHA) loan may help. FHA loans give borrowers like you an advantage because lenders understand that the Federal Housing Administration insures your mortgage. Here are five things you need to know about FHA home loans.
You must have a credit score of only 500 or higher to qualify. It would be best if you had a debt-to-income ratio of 50 percent or less, and you must come up with 3.5 percent as a minimum down payment. These requirements are far less demanding than a conventional mortgage.
Conventional borrowers who put down less than 20 percent on the down payment can cancel their mortgage insurance when they gain equity. FHA home loan borrowers who pay under 10 percent of the down payment must contend with an FHA mortgage insurance that lasts the life of the loan. However, you cannot cancel the FHA mortgage insurance unless you sell the home and it ceases to become your primary residence or refinance your home loan.
As long as the home is your primary residence, you can use an FHA home loan to purchase a manufactured home, a multifamily home, and a single-family home. You can’t use an FHA loan to buy a property as an investment. You must live in the home to qualify.
Individual FHA lenders are free to set their own rates and terms so long as they comply with the minimum requirements set by the FHA. Shop around for quotes and compare loan offers to find one that suits you best.
If you purchase a home in a presidentially declared disaster zone, the FHA 203(h) Mortgage Insurance for Disaster Victims program can finance the repairs or rebuilding of your home in case a natural disaster has damaged it. However, this aid is only extended to single-family homes, and applicants must raise a claim within a year of the disaster.
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