Government programs for Buying a House

How To Qualify For FHA Loan

To qualify for FHA loan, a mortgage borrower must meet the minimum standards of the Federal Housing Administration's mortgage program, which include showing a minimum credit score of 500; having verifiable income and employment; and, proving legal resident status of the United States. The program is available to first-time home buyers, repeat home buyers, and can be used to refinance an existing mortgage of any type. The FHA loan does not enforce a maximum income limitation.

FHA Mortgage Rates Lower Than Conventional

You can buy a house without putting 20% down - even if your credit's not perfect.

One of the most popular low-down payment mortgages among borrowers with less-than-perfect credit is the program known as the FHA loan.

It's a program backed by the Federal Housing Administration and available via nearly every mortgage lender in the country. If you want to use FHA financing, you give a mortgage application to a lender just like you would for any other loan type.

For years, the FHA has advertised its products as loans for consumers "on the margins" of homeownership; those with less-than-perfect credit scores, with elevated debt-to-income ratios, or with a lack of credit history.

This doesn't mean that the FHA program is limited to first-time home buyers, though, or to people who otherwise can't get financed.

The FHA program has evolved since its 1934 inception. Today, FHA loans are among the most flexible and rewarding home loan products available to U.S. buyers.

Here are 6 FHA mortgage facts you may not have known.

Fact 1 : The FHA Is Not A Mortgage Lender

The FHA is not a mortgage lender. It's a mortgage insurer.

The acronym "FHA" stands for Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development.

The FHA doesn't make mortgage loans to home buyers or refinancing households. Rather, the FHA provide mortgage insurance to banks, credit unions, and other lenders which make loans meeting FHA insurance standards.

The FHA reimburses lenders for a portion of incurred losses in the event that their FHA-insured loans default, or go to short sale or foreclosure.

Fact 2 : FHA Loans Aren't Just For First-Time Buyers

FHA loans are not for first-time buyers only. FHA loans can be used by first-time buyers and repeat buyers alike.

The FHA loan is often marketed as a product for "first-time buyers" because of its low down payment requirements. However, last decade, many U.S. homeowners have lost home equity in the housing market downturn.

These repeat buyers may have little money for downpayment - even after the sale of their former home.

The FHA will insure mortgages for any primary residence. There is no requirement which states that you must be a first-time buyer in order to use the FHA loan program.

Fact 3 : FHA Loans Don't Require 20% Down Payment

FHA loans do not require a 20 percent down payment.

For home buyers, FHA mortgages require a 3.5 percent downpayment with the fewest "strings" attached. This makes the FHA mortgage one of the most lenient mortgage types available nationwide.

There are very few credit restrictions with the FHA loan and the agency allows your 3.5% downpayment to comes as a gift from a family member, employer, charitable organization or government home-buyer program.

Other low-downpayment mortgage programs have eligibility requirements. The VA loan, for example, allows for 100% financing but you must be an eligible military borrower to use it.

The USDA Rural Development loan also allows 100% financing but the USDA program requires that your home be in a less-developed census tract; and that your household income is within certain limits.

Fannie Mae's oldest 3% downpayment program - the Conventional 97 - limits loan sizes to $417, 000 and can be used for single-family residences only. Even its HomeReady™ mortgage imposes restrictions based on where you're buying.

FHA loans are available for loans of up to $729, 750 for streamlined refinance.

Fact 4 : FHA Loans Allow Low Credit Scores

Lenders can approve FHA loans with no credit score whatsoever.

FHA loans feature some of the flexible and forgiving credit standards of any available loan type. With an FHA-backed loan, perfect credit is not required, and mortgage lenders are expressly instructed to consider a borrower's complete credit history - not just isolated instances of late payments here and there.

Since 2011, FHA mortgage rates have been lower than comparable conventional products.

Note that not everyone will qualify for an FHA home loan. Borrowers with a "banged-up" history, though, have a much better chance of getting loan approval via the FHA than other government agencies.

Even if you've been turned down for other types of credit, such as an auto loan, credit card or other home loan programs, an FHA-backed loan may open the door to homeownership for you.

Fact 5 : FHA Loans Aren't Always Expensive

FHA loans can be more expensive, or less expensive, than other loan types. The long-term cost of an FHA loan depends on your loan size, your downpayment, and your location.

The biggest cost of an FHA home loan is usually not its mortgage rate - FHA mortgage rates are often less than comparable conventional mortgage rates via Fannie Mae and Freddie Mac. The biggest cost is the FHA mortgage insurance.

FHA mortgage insurance premiums (MIP) are payments made to the FHA to insure your loan against default. MIP is how the FHA collects "dues" to keep its program available to U.S homeowners at no cost to taxpayers.

MIP is paid in two parts. The first part is paid at closing and is known as Upfront MIP. Upfront MIP is automatically added to your loan balance by the FHA so no payment is required at settlement. Upfront MIP is equal to 1.75% of your loan size.

By contrast, annual mortgage insurance premiums are paid monthly, in twelve equal installments annually.

In early-2015, FHA MIP was reduced, which reduced loan costs for FHA borrowers.

Annual MIP can range as high as 1.10% in high-cost areas such as Orange County, California; Potomac, Maryland; and, New York City, New York. For most borrowers, though, MIP is between 0.45% and 0.85% annually.

As compared to conventional loans with less than 20% downpayment, FHA MIP is sometimes more costly, and sometimes less so.

Fact 6 : You Can Re-Apply For FHA Loans If You've Been Turned Down

All FHA loans are not the same. There are many "types" of FHA loans, and mortgage rates vary by lender.

As an agency, the FHA publishes and maintains minimum eligibility requirements all of the loans it insures. However, FHA lenders enforce additional requirements on FHA loans, known as "investor overlays."

A sample of investor overlays includes raising the minimum FHA mortgage score requirement; or, requiring additional time since a bankruptcy, short sale, or foreclosure; or requiring employment verification for an FHA Streamline Refinance transaction.

Because of overlays, when you've been turned down for an FHA mortgage by Lender A, you should always try to apply with Lender B which may approve your FHA loan request. Plus, mortgage rates can be very different from bank-to-bank.

Your loan may be approved once you re-apply.

What Are Today's FHA Mortgage Rates?

The FHA insures home loans in all 50 states, in the District of Columbia, and in many U.S. territories including Puerto Rico, Guam and the U.S. Virgin Islands.