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An FHA loan is a mortgage loan with flexible guidelines backed by the Federal Housing Administration ( A Department of HUD). FHA loans are extremely popular with first time home buyers because they allow down payments as low as 3.5% and allow the seller to pay the borrowers closing costs. In addition, there are many not for profit grants available to help pay the down payment.
FHA has flexible credit requirements. FHA borrowers sometimes have credit scores as low as 580. In some cases credit scores as low as 500 are acceptable.
A credit challenged borrower is more likely to choose FHA because of the fair treatment of borrowers. The mortgage rate offered to lower credit score borrowers is typically much higher than market mortgage rates but with FHA. If you want to be sure you are not taken advantage of by a mortgage lender, FHA may be a great option. The loan program for first time home buyers has regulations built in to the guidelines to make sure no home buyer is taken advantage of.
Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development (HUD) in 1965. During the 1940’s, FHA programs helped finance military housing and homes for returning veterans and their families after the was. With the help of FHA, by 2001, the nation’s home-ownership rate had soared to an all time high of 68.1 percent.
Flexible Credit Guidelines – FHA Loans have flexible underwriting guidelines which include lower time needed since a derogatory mark on the credit report.
Low Interest Rates – FHA offers some of the best available mortgage interest rates.
Low Down Payment – An FHA loan only requires 3.5% down and the seller is allowed to pay your closing costs. Grants are available to help with a down payment.
Property Condition – In addition to the low down payment FHA also helps insure the property you are buying is a quality home. We would like to think all sellers are honest and aware of all the issues with the home they are selling but this is not always the case. With FHA, a property appraisal is required in addition to a water and septic inspection for private systems. The inspection and appraisal completed help provide more detailed information to the home buyer to make sure you are not walking in to a money pit.