FHA

FHA refers to the Federal Housing Administration, a U.S. government agency that insures mortgages to make them more accessible to homebuyers, especially first-time buyers and those with lower credit scores. Its key benefits include low down payment options and lower closing costs. A drawback is the mandatory mortgage insurance premium (MIP), which can be costly, and property requirements that may be strict. 

FHA loan programs 

  • Function: The FHA insures loans made by private lenders, which lowers the risk for those lenders.
  • Eligibility: Generally designed for primary residences and available to a wide range of borrowers, including first-time homebuyers, seniors, and those buying manufactured homes.
  • Credit score: While the FHA has minimum requirements, individual lenders may have higher standards.
  • Mortgage insurance: FHA loans require an upfront premium and annual premiums, which are paid monthly.
  • Pros: More accessible than conventional loans due to lower down payment and credit score requirements.
  • Cons: Mortgage insurance is a mandatory and often costly requirement, regardless of the down payment amount. Properties must also meet specific FHA appraisal standards. 

Requirements:

Credit score of 580 or higher: A minimum down payment of 3.5% is required.

Credit score between 500 and 579: A minimum down payment of 10% is required.

Debt-to-income (DTI) ratio: Generally no higher than 43%.

Occupancy: You must be able to physically occupy the home within 60 days of closing.