An FHA mortgage loan is insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers. FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment.
- People whose house payments will be a big chunk of take-home pay.
- Borrowers with low credit scores or previous short sales and foreclosures
- Home buyers with small down payments and refinances with little equity
The Federal Housing Administration does not lend money. It insures mortgages.
The FHA borrowers to spend up to 56% of their Income on monthly debt obligation, such as mortgage, credit cards student loans and car loans. In contrast, conventional mortgage guidelines tend to cap debt-to-income ratios at around 45% and sometimes less.
For many FHA borrowers, the minimum down payment is 3.5%. Borrowers can qualify for FHA loans with credit scores low as 620.
What’s good: FHA loans are often the only option for borrowers with high debt-to-income ratios and low credit scores.
What’s not as good: FHA mortgage insurance premiums usually are higher than premiums for private mortgage insurance. To get rid of FHA premiums, you must refinance the loan.