February 19th, 2020 1:27 PM by Jackie A. Graves, President
The Federal Housing
Administration, or FHA, offers home loans that can help you make repairs, tap
into home equity, avoid foreclosure and more.
FHA home loans provide a path to homeownership for borrowers with
lower credit scores or limited cash for a down payment. Lenders are willing to
take on these borrowers because the mortgage is insured by the Federal
Get an idea of how the FHA could help you achieve your
homeownership goals with this list of nine FHA home loan facts.
It’s easier to qualify
for an FHA loan than for a conventional
mortgage. FHA loan rules make allowances for borrowers who might not have
an extensive credit history or who need to use gift money to make a down
payment, for example. Here are the basic requirements to apply for an FHA loan:
Credit score of 500 or
Debt-to-income ratio of 50%
3.5% minimum down payment.
The home must meet the FHA’s
minimum property requirements and be your primary residence.
FHA mortgage insurance is mandatory for all FHA loans. Unlike the
private mortgage insurance paid by conventional borrowers who put down less
than 20%, FHA mortgage insurance can’t be canceled just because you gain
If you make a down payment that’s under 10%, FHA mortgage
insurance lasts for the life of the loan. With a 10% (or higher) down payment, you’ll
pay FHA mortgage insurance for 11 years.
FHA loans aren’t just
for single-family homes. Guidelines for buying FHA-approved condos recently
broadened, and you can also use an FHA loan to purchase a multifamily home or a
No matter the type of home, in nearly all cases it has to be your
primary residence. For example, if you use an FHA loan to purchase a duplex,
you need to live in one of the units. Investment properties aren’t eligible for
While the FHA sets minimum requirements, individual FHA lenders
may have stricter standards. For example, a lender might set their minimum
credit score for an FHA loan at 580 rather than 500.
Lenders determine their own rates and terms, so as with any loan
application, it is always a good idea to shop around and compare loan offers.
Getting a mortgage preapproval from more than
one lender will let you see the total cost of a loan, including FHA closing costs and other fees.
The Making Home
Affordable program is a government initiative to help borrowers who are
suffering a financial setback.
If you are facing default or are already in default on an existing
FHA mortgage, MHA may be able to help you reduce your loan payments and avoid
foreclosure. This FHA program isn’t a refinance; instead, your loan is either
modified to give you a more affordable monthly payment and/or the Department of
Housing and Urban Development provides you with a no-interest loan to cover
overdue payments, called a partial claim.
earthquakes, hurricanes, tornadoes and other natural disasters are becoming the
new normal. If you are in a presidentially declared disaster zone, the FHA
203(h) Mortgage Insurance for Disaster Victims program can provide 100%
financing for the purchase or reconstruction of a home severely damaged or
destroyed in a disaster.
FHA 203(h) loans are only available for single-family homes or
condos, and you need to apply within one year of the disaster declaration.
Buying a fixer-upper or want to
renovate your current home? The FHA has several renovation loan programs that
are geared toward home improvement:
FHA 203(k): Both standard and limited
203(k) loans let you roll the cost of renovations into your total mortgage
amount. A HUD-approved consultant may be required to oversee work, and major
structural repairs may not be eligible.
FHA 203(k) Refinance: Both the standard
and limited 203(k) loans are offered as refinancing options for existing
FHA Title I Loan: These fixed-rate loans
allow borrowers to finance home improvements that protect or improve a home’s
functionality. FHA Title I loans can also be used to purchase a manufactured
FHA Energy Efficient Mortgage: This loan finances
upgrades to new or existing homes, so long as they’ll help you save on utility
bills once installed. The EEM can be used in conjunction with other FHA
purchase or refinance loans.
If you’re 62 or older,
live in your home and own it outright or have a low mortgage balance remaining,
Home Equity Conversion Mortgage program is a way to tap into your equity.
Like other reverse mortgages, HECM allows homeowners to convert
equity into cash without selling their home or taking on additional loan
payments. To determine whether you’re eligible and whether an FHA HECM is the
right move for you, you’ll have to meet with an HECM counselor.
As part of the
home-buying process, your lender will have an FHA-approved appraiser check out
your future home to be sure it meets the FHA’s minimum property requirements.
The FHA appraisal is separate from a home inspection.
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