An FHA loan is a home purchase and refinance loan, similar to a conventional mortgage.
The difference between the two is that FHA loans feature mortgage insurance from the Federal Housing Administration. So rather than making mortgage loans to home buyers or refinancing households, the FHA provides mortgage insurance to banks, credit unions, and other lenders.
The FHA would reimburse lenders for part of their losses in the event that the borrower defaults. This helps borrowers with lower scores and higher existing debt payments still qualify for lower interest rates.
While the requirements for an FHA loan are a lot more flexible than other loan options, there are still some qualifications you must meet.
Qualifying for an FHA loan usually requires a credit score of at least 580, a 3.5% down payment, and a debt-to-income ratio of 55% or less. Beyond that, each individual lender can enforce their own set of requirements, so if you get denied by one lender, you may be approved by another.
With an FHA loan, credit qualifying is much easier since they can lower the requirements for getting a mortgage approved. That is not to say it is a quick process though. Loan officers have to check your income, appraisers have to verify the condition and value of the home, and attorneys have to determine the title history of the property. Even then, once you’ve agreed on the purchase price and entered a contract to buy the home, it could take up to two months to actually close on the loan.
Compared to conventional loans, FHA loans provide competitive interest rate mortgages to homebuyers who have lower down payments and credit scores. Due to these relaxed credit qualifications, FHA borrowers are required to pay both upfront and annual mortgage insurance premiums. Typically, the cost of these extra payments can be covered by the interest savings earned by choosing an FHA loan.
Verify your FHA loan eligibility and find your lowest interest rate by contacting Georgia Platinum Mortgage today!