Federal Housing Authority (FHA) loans are government-backed mortgages meant to fulfill the dream of homeownership for people who have struggled with their credit. Though policies vary by lender, the current FHA requirement states that someone with a minimum credit score of 580 can qualify with a down payment of 3.5%. For perspective, this is less than one-third the national down payment average of 12%. Additionally, FHA loans offer competitive interest rates and can minimize closing costs.
Since FHA loans are geared towards allowing low-income, first-time homebuyers the ability to borrow more than they otherwise could, these mortgages require at least a year of owner occupancy are therefore not intended for real estate investors.
This program came into existence during the Great Depression, when record numbers of Americans were defaulting and foreclosing on their loans. Though the government subsidized some FHA loans, private mortgage insurance (PMI) companies eventually had to be involved in order to provide lenders with adequate insurance on the heightened risk. Today, this increased risk to the lender is typically offset by a two-part mortgage insurance consisting of one bulk payment and monthly payments.
The FHA has multiple loan programs which may allow for extenuating circumstances. For instance, you may be able to be approved with a credit score as low as 500 as long as you can make a down payment of at least 10%. Additionally, borrowers with a history of bankruptcy and foreclosure can still be considered; they typically need to work on their credit for a few years before applying for another loan.
When you get pre-qualified with NOVA Home Loans, a Loan Officer in your area will get in touch with you about the loan program that best fits your needs. Get started today by telling us a little bit about yourself!