An FHA loan is a type of government loan that is insured by the Federal Housing Administration and issued by FHA-approved lenders. Designed for low-to-moderate income borrowers who may have less than perfect credit history, FHA loans typically have less stringent underwriting and allow for lower down payments, all of which can come in the form of a gift.
While most lenders require around a 620 credit score for an FHA loan, Ross Mortgage is expanding homeownership opportunities for more people by lowering the minimum credit score to 580 for qualified borrowers.
Who is FHA financing for?
In today’s seller’s market, it’s crucial to find a home loan that puts you in the best possible financial position, so you can give a competitive offer. The FHA loan is a great option not only for first-time homebuyers who are in the process of building their credit from scratch, but also a great option for boomerang buyers who may have experienced a foreclosure, short sale or bankruptcy and are working to rebuild their credit.
Additionally, the FHA loan may be a great financing solution for two-income households where one person has good credit and the other doesn’t. The FHA loan allows the significant other with the lower score to build credit as a co-borrower on the mortgage while trying to boost their score in other ways, as well.
Advantages of FHA loans
- Easier to qualify for based on more generous credit qualifying criteria.The lending guidelines associated with FHA financing are traditionally less stringent than conventional financing, making it easier to qualify for an FHA loan.
- Flexible credit requirements.With our minimum credit score requirement of 580, qualifying for an FHA loan has never been easier!
- Lower interest rates.Save money over the life of your loan with a lower interest rate.
- FHA loans are a great low down payment option.The down payment requirement for an FHA mortgage starts as low as 3.5% and is ideal for first-time homebuyers who are just starting to build their credit and their savings.
- Down payment and money for closing may be gifted by a relative. Another benefit of the FHA loan program is that borrowers can use gift money, government grants or seller concessions to help with their required down payment.
Drawbacks to consider
- Private Mortgage Insurance (PMI) is required and cannot be removed.FHA loans are subject to upfront and annual mortgage insurance premiums. Although FHA loans tend to come with slightly lower interest rates, additional costs, such as PMI and upfront premiums, should be considered when evaluating the benefits of conventional vs. FHA loans. The additional costs may actually result in a higher monthly mortgage payment and cause you to pay more over the life of the loan.
- Property guidelines may be stricter than conventional loans.Because FHA mortgages are insured by the government, there are typically stricter appraisal guidelines. The property in question must meet certain minimum criteria before it can be approved for FHA financing.