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FHA Loans: Everything You Need To Know

Credit history and down payment worries shouldn't stop you from owning your own home. Check out FHA loans for a home loan option that offers flexible down payment and credit requirements.

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FINANCING WITH AN FHA LOAN

What is an FHA Loan?

FHA loans get their name because they are backed by the Federal Housing Administration (FHA). This means that the FHA protects the lender if the borrower defaults on the loan. Because they offer less risk to the lender, FHA loans have more relaxed down payment and credit requirements than conventional loans do. The option of a low down payment and less stringent credit requirements can make FHA loans especially appealing for first-time home buyers, but you don’t have to be a first-time home buyer to qualify. There’s one important caveat to keep in mind for FHA loans. If you finance your home with an FHA loan, you’ll need to pay mortgage insurance, which protects your lender in case you can’t make your mortgage payments.

GETTING YOUR FHA LOAN

Benefits of an FHA Loan

Do low down payment options and flexible credit requirements sound good? Of course they do! FHA loans offer more flexibility when it comes to your credit score, down payment amount, and debt-to-income ratio. Another sweet benefit of FHA loans is the option to use gift funds for your down payment and closing costs. Relatives, employers, unions, charitable organizations, government agencies, and even friends can gift funds for you to use in the transaction. More cash in your pocket and being able to buy the home of your dreams is a win-win!

Who Qualifies for an FHA Loan?

Despite popular belief, you don’t have to be a first-time home buyer to qualify for an FHA loan (although first-time home buyers love FHA loans for their more flexible credit and down payment requirements). Plenty of other home buyers can benefit from this loan program too, but all eligible borrowers must meet certain minimum credit scores, down payment, and debt-to-income ratio requirements. FHA loans have limits on how much you can borrow, and your loan must meet the designated loan limit for your county. FHA loans can only be used for a primary residence, so if you’re looking to finance a second home or a rental property, an FHA loan isn’t the loan for you.