If you’ve just started shopping for your new house you may have heard about an FHA loan as an option. An FHA loan is offered by the US Federal Housing Administration (FHA) as a form of federal assistance. These loans are insured by the US Federal Housing Administration directly but are offered through an FHA-approved vendor.
As of 2020, those who qualify for an FHA loan can have up to 96.5% of the value of the home covered by the loan. This leaves the remaining 3.5% as the required down payment. Credit scores that qualify for an FHA loan are generally above 580. However, with a 10% down payment, a credit score between 500-579 may still qualify. FHA loans allow for down payments derived from savings, a grant, or as a monetary gift from a family member.
It is up to the FHA-approved lender to qualify you for the FHA loan, but mortgage payments are paid directly to the FHA. The FHA also requires mortgage insurance alongside the loan.
There are five types of FHA Loans. These are:
- Traditional Mortgage
- Home Equity Conversion Mortgage
- 203(k) Mortgage Program
- Energy Efficient Mortgage Program
- Section 245(a) Loan
These are explained in detail here.