An FHA loan is a mortgage backed by the U.S. Federal Housing Administration with relaxed qualifications, making it easier to become a homeowner. This is accomplished by allowing lower down payment requirements, lower credit score minimums, and higher debt to income ratio tolerances. Other flexibilities regarding income, asset, and credit qualifications make it easier as compared to a conventional loan.
The minimum down payment for an FHA loan is 3.5% for credit scores 580 and above. For credit scores below 580, you may have to put as much as 10% down. A two-year employment is history is generally required, unless you were a student who is now working in the same field of study. Funds for closing can be sourced from your earned income, gifted from a family member, or cash on hand as long as you can show a consistent pattern of savings history.
FHA loans are available on most property types, including condos and manufactured homes. You will be required to pay monthly mortgage insurance, since they are insured by the government. These types of loans may only be used to buy your primary residence and you can typically only have one outstanding FHA loan at a time.
Knowing exactly what you’ll bring to the closing table is an important part of the initial qualification process. Make sure you have a firm understanding of all of the funds you’ll need to bring to the closing table.