FHA Loans


What is a FHA Loan?

An FHA (Federal Housing Administration) loan is an agency of the federal government that insures private home loans. Before the FHA was established, it was common for homeowners to put down 50% of the value of the home as a down payment, thus the FHA was started to create a practical mortgage option for everyone.

The federal housing administration doesn’t approve these loans, but merely insures them to protect the lenders who issue them.

The difference between and FHA loan and a 15 or 30 year mortgage is that the FHA loans are backed by the federal government. This helps to protect lenders against defaults and makes it possible to offer competitive mortgage interest rates on more risky loans.

FHA Loan Benefits

The FHA loan comes with quite a few benefits for both first time home buyers and those looking to buy another home.

  • Low credit score – Minimum 580 credit score
  • Low Down payment – you are required to put down at least 3.5%

If your credit score is between 500 and 579, you are still eligible for a FHA loan, however you will need to put down at least 10% or make sure your loan is 90% loan-to-value.

FHA Loan Qualifications

FHA loans are one of the easier mortgage types to qualify for because they are backed and insured by the federal government. Because of which, the government has lower credit guidelines than traditional lenders and mortgage types.

What are some of the loan guidelines?

  • Have a positive credit history spanning the last 2 years.
  • Show consistent and increasing income and employment
  • Have no bankruptcies in last 2 years
  • The mortgage payment must be 30% of gross income or less
  • Down payment – can be as low as 3.5% of the purchase price
  • Credit Score – Minimum 580 credit score.
  • Closing costs – Closing costs are allowed to be bundled into the loan to help you with the cost of closing.

With this in mind, you cannot have a 0% down payment. FHA loans require a minimum of 3.5%.

Keep in mind that these guidelines are setup by the FHA and individual mortgage lenders will always have their own guidelines on top of those.

Who Should Get A FHA Loan?

The biggest aspect with getting pre-qualified for an FHA loan has to do with your credit score and the amount of money you can put down. If your credit score is hovering around the 580 range and you only have 3.5% down, then a FHA loan may be the best way to go.

If you have further questions about a FHA loan or about qualifying, give us a call (432) 897-2299 or email us your questions. We’re here to help.

Frank Perea is a mortgage broker based out of Midland, Texas and serves clients all throughout eastern Texas including: Odessa Texas, Monahans Texas, Big Springs Texas among others.