Federal Housing Administration Loan
Candlefocus EditorQualification criteria for FHA loans tend to be less strict than traditional loans and the interest rates are usually lower. Applicants have to meet minimum income requirements, although they do not have to have an excellent credit score. Those with credit scores as low as 500 benefit from the FHA loan program.
One of the major advantages of FHA loans over traditional loans is that borrowers may be approved for a loan with a smaller down payment going as low as 3.5%. Borrowers may put as little as 3.5% down, as long as they meet certain income requirements. This makes FHA Loans a great option for those who don’t have considerable savings or cannot meet the 20% down payment that is typical of conventional loans.
Borrowers of FHA loans must also pay private mortgage insurance and the upfront mortgage insurance premium. Private mortgage insurance (PMI) protects lenders in the event of default and the upfront mortgage insurance (UFMIP) is a one-time fee paid as a percentage of the loan amount.
The bottom line is that FHA loans offer flexible qualification requirements, competitive rates, and lower down payments - all of which can be a major help to homebuyers. Because of the less stringent qualification requirements and lower interest rates, FHA loans can be a great option for those who would face difficulty in securing a traditional loan from private lenders.