Launched in 1934, the Federal Housing Administration was established to help the housing market rebound after the Great Depression.
An FHA loan is a government-backed loan that allows people to buy homes with a down payment as low as 3.5 percent. The FHA is the only government agency that does not take taxpayer money to operate. Proceeds from mortgage insurance that homeowners pay actually fund the program.
In order to get an FHA loan, you must have a solid credit history, and your lender must be FHA-approved.
Credit History and FHA Loans
Your credit history matters when you are applying for a FHA loan. If your credit score is lower than 499, you aren’t eligible for an FHA loan. People with a credit score between 500 and 579, are able to borrow 90 percent of the loan-to-value ratio. With a credit score of 580 or higher, you’ll be eligible for maximum financing.
With an FHA loan, you need to work with a lender that is approved by the FHA. It is very important to shop around, because not all lenders will provide the same services at the same costs.
Mortgage Insurance Premiums
Two mortgage insurance premiums are required for an FHA loan. You must pay 1.75 percent of the loan amount up-front. Although this cost can be paid when you sign your mortgage paperwork, you can also have this financed into your loan for the house.
The second premium you will pay is your annual premium. You’ll pay it monthly, and it will vary based upon the loan amount, length of loan, and initial loan-to-value ratio.