What’s an FHA mortgage?
And how is it different than a conventional loan? FHA stands for ‘Federal Housing Administration’ and is a government-backed program that provides a loan guarantee in lieu of private mortgage insurance so qualified and responsible borrowers can purchase homes with lower down payments. FHA does not lend the money, but ‘backs’ or ‘insures’ the loan, thus reducing the risk for the lender. FHA loans typically have lower credit score requirements, can sometimes allow higher debt to income ratios, and more relaxed overall guidelines than conventional mortgages.
FHA mortgage programs can be ideal for borrowers with less than perfect credit. Recent turmoil in the financial markets has caused the virtual elimination of sub-prime and Alt-A programs. An FHA mortgage can be the right choice for borrowers who have had credit challenges in the past and who may have less than great credit scores. Even borrowers with great credit sometimes choose FHA mortgages due to the more relaxed down payment requirements.
Is an FHA mortgage right for you?
In today’s changing mortgage landscape, FHA mortgage programs are once again a great option for many people. Current homeowners looking to refinance can borrow up to 97.75% of the value of their primary residence. If you are looking to purchase with little money down, FHA currently allows down payments as low as 3.5%!
What does FHA offer?
- Low down payment for purchases- only 3.5% minimum down payment needed
- 97.75% loan-to-value available for rate-term (no cash out) refinances
- Up to 85% loan-to-value cash-out option for refinances
- Can be a great choice for those with less-than-perfect credit
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