Perks of an FHA Loan

What is an FHA loan?

The FHA Loan is a type of government-backed loan with looser qualifications that was intended to help first-time buyers qualify for a mortgage. The FHA, a division of the Department of Housing and Urban Development, is responsible for guaranteeing the FHA loan. This means that if the borrower misses too many payments and defaults on the loan, the FHA will repay the lender for the loan. This makes it less risky for banks and mortgage companies to lend to borrowers who otherwise might not qualify for a mortgage. 

With a lower down payment and more flexible restrictions, the FHA loan aims to increase loan accessibility and affordability. FHA loans are very popular with first-time buyers for this reason. 

How to qualify

FHA loan guidelines tend to be less restrictive in order to accommodate more buyers. 

The requirements to qualify typically include:
  • Minimum 3.5% down payment
  • Maximum Debt-to-Income Ratio: 43%, can be higher in certain circumstances
  • Must be primary residence 
  • Must have steady income and proof of employment
  • Must have a property appraisal from an FHA-approved appraiser
Additional qualifications and eligibility requirements apply. 

Is mortgage insurance required?

Yes, a mortgage insurance premium (MIP) is required for all FHA loans, regardless of down payment amount. FHA mortgage insurance cannot be canceled or terminated, unlike Conventional loans, but you can refinance into another loan over time. If you’re considering an FHA loan, it’s important to factor in this additional cost.

The Perks of an FHA loan

FHA loans can be a great option for all buyers, as there’s no first-time home buyer requirement. However, you cannot have owned a home in the past 3 years. 

Here are some additional benefits of FHA loans:
  • Low credit score requirement. FHA loans are a great option for those with less than perfect credit. However, you’ll want to keep in mind that your interest rate and the amount you can borrow can be impacted by your credit score. 
  • Low down payment requirement. As mentioned previously, the minimum down payment for an FHA loan is 3.5%. FHA loans also allow for additional down payment assistance from approved sources.
  • Flexible borrower requirements. You can still qualify for an FHA loan if you’ve undergone bankruptcy or a foreclosure in the past.
    • Must be 2 years out of bankruptcy with re-established good credit
    • Must be 3 years out of foreclosure with re-established good credit
  • Gifts allowed. You can qualify with gift money, as long as the funds are properly documented and you receive a gift letter from the donor.
  • Available on 1-4 unit properties. Eligible borrowers can purchase up to 4-units with an FHA loan. One unit must be utilized as your primary residence.
Speak with a lender directly to determine if an FHA loan might be the right financing option for you!

For more information about the Federal Housing Administration (FHA), visit: https://fha.gov/ 


The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.
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