FHA loans have allowed millions of Americans with lower credit scores or less cash on hand to purchase a home.  Those who qualify can pay as little as 3.5% as a down payment on their new homes.  Understanding how an FHA loan works can be difficult, especially for first-time home buyers, so we’ve simplified the basics of what you need to know if you’re considering whether or not this option is right for you. 

What is an FHA loan?

The Federal Housing Administration (FHA) provides lenders with the insurance needed to issue these loans as part of an effort to make buying a home accessible for more Americans.  This means that the government protects lenders if borrowers are unable to make their payments, allowing for more people to qualify.  In order for the FHA to allow this, borrowers are required to pay a mortgage insurance premium (MIP), which is similar to the private mortgage insurance (PMI) that some conventional loans require, except it cannot be canceled in most circumstances and may cost more.  The upfront mortgage insurance premium (UFMIP) costs 1.75% of the loan, which can either be paid in full when receiving the loan, or can be rolled into the loan, meaning you would pay interest over the loan’s lifetime.  In addition to this, the annual MIP costs between .45% and 1.05% of the loan, depending on how long the loan is being paid off, the amount of the loan, and the loan-to-value (LTV) ratio.  These MIP costs may make FHA loans more expensive in the long run, but the low down payment, possibility of financing your down payment through gifts, forgiveness of past bankruptcies or foreclosures, extra funding for repairs and renovations (through the FHA 203k or FHA Energy Efficient Mortgage programs), and easier qualifications make it the most viable option for many.

Qualifying for an FHA Loan

In order to qualify for an FHA Loan, you need:

  • To be purchasing a primary home
  • A verifiable employment history with stable income throughout the past two years
  • A minimum credit score of 580 for a 3.5% down payment, or 500 for 10% down

You may need to contact an FHA lender for additional qualifications or clarifications. 

Getting Approved for an FHA Loan

Golden Lenders is an approved FHA lender, so we are well versed in how you may qualify for this program.  We will shop the best FHA rates and terms for you to make sure you’re getting the best value possible. You can count on us to provide highly personalized service that you won’t find working directly with large financial institutions.  For more information on FHA loans in Colorado or Florida, call us at (303) 482-2361, or send us a message.