A Government-Backed Mortgage Loan
An FHA loan is insured by the Federal Housing Administration and can be used to buy a home or refinance an existing mortgage. An FHA loan has lower down payment and credit requirements – making it a great option for low-to-moderate-income and first-time homebuyers.
In addition, FHA streamline refinances allow borrowers to refinance their existing mortgage with minimal documentation.
Benefits of FHA Loans
- Lower credit score requirements as compared to other loan options
- Minimal down payment of 3.5%
- Fixed or adjustable rates and 15 or 30-year terms
- Allows gift funds
- Insures different types of properties
- Streamline FHA refinance is usually faster than a typical refinance since it doesn’t require any income verification, appraisal, or credit qualification
- Closing costs can be financed into the loan
Property Requirements for FHA Loan
- Down payment of at least 3.5%
- Minimum credit score of 580 or higher
- Debt-to-income ratio of less than 50% and consistent employment history required
- Additional funds required upfront for mortgage insurance premiums. The upfront mortgage insurance premium equals 1.75% of your actual loan amount.
- Closing costs will typically be anywhere between 2% to 6% of the purchase price
Requirements of FHA Loan
- FHA loan limits should be considered based on your area. Check them out here. The 2021 maximum FHA loan limit for most of the regions in the US is $356,362 for a single-family home
- Property must meet the minimum property standards defined by the Federal Housing Administration.
- Safety – the property should not affect the health and safety of the neighborhood
- Soundness – the property should be defect-free to avoid any fault in the structural integrity
- The homebuyer must occupy the property within 60 days of closing
- Property must be borrower’s primary residence