An FHA loan provides a government-insured loan with flexible loan options. Even experienced homeowners may need to plan for a long time for a new home purchase. Fortunately, FHA loans may help some buyers get into the home of their dreams with a lower down payment.

What is an FHA loan?

FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions, that provide FHA loans provide funding for home purchases while requiring a lower down payment. Buyers may get into a new home with as little as 3.5% down.

Using conventional loans, a lower down payment requires the borrower to get private mortgage insurance. This special type of insurance protects the lender just in case the borrower is not able to pay. The cost of PMI is added to the monthly payment until the amount of the loan reaches 20%. FHA loans, on the other hand, do not require PMI because they are backed by the U.S. government, but they do have an FHA annual fee that is almost the same thing as PMI.

What is required for an FHA loan?

Many of the same documents are required for an FHA loan that any potential lender will want to see: employment history, appraisal, and a maximum debt-to-income ratio. A few additional stipulations are also attached to the FHA loan process. Buyers typically have to bring a minimum 3.5% of the purchase price as a down payment, but we do have down-payment assistance loans that can cover the down-payment. FHA loans are only available for the borrower’s primary residence.

Credit requirements may also be lower for FHA loans, given other factors demonstrate that the borrower is able to manage their money responsibly. Each lender looks at individual applications and may ask for additional documentation or explanations. They are often able to work with buyers with a lower credit score or shorter credit history than in other situations.

How FHA Loans Work

• Purchase your home with as little as 3.5% down payment (compared to 20% required on most loans).
• 30-, 25-, 20- and 15-year terms are all available with fixed rates.
• 5-year adjustable rate mortgage available.
• Pay your mortgage off at any time without pre-payment penalties.

Have questions?  Give me a call! I’ll be happy to go through all your options and find the best loan program and structure for you!

**Capital City Home Loans is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.