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FHA Loan Definition

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FHA Loan Definition

An FHA loan usually requires the lowest down payment when purchasing a home, only 3.5% of the sales price. It also allows for lower scores than conventional loans, usually down to a 580. You may be able to roll your closing costs in to your loan. The home must be the borrower's primary residence. FHA is often the best loan program for first time home buyers. If you already have an FHA loan, you can refinance with FHA Streamline to lower your interest rate.

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Are you in the market to purchase a new home but are struggling to save enough for a down payment and credit issues? FHA home loans could be the answer you’re searching for. Here is the FHA definition to help answer the question what is an FHA loan and how can it help you buy the home of your dreams.

What is FHA Definition?

FHA home loans are a mortgage loan issued by conventional banks and lenders that is insured by the Federal Housing Administration against default. These loans are popular with new homebuyers because of relaxed down payment and credit requirements. This insurance allows lenders to approve borrowers who have had credit issues in the past without requiring a large down payment.

If your credit score of 620 or better you can be approved for a government insured loan with a down payment as low as 3.5 percent. If you’ve had bankruptcy or other credit challenges the amount of your down payment depends on your credit score. With a credit score of less than 580 you can be approved for a loan with a down payment of 10 percent of the home’s value.

Is this FHA definition leaving you feeling overwhelmed? Contact one of our dedicated loan specialists today for help finding the right program for your next home loan.

Pros and Cons of Government Backed Loans

There are costs associated with financing your home with an FHA mortgage loan that you don’t have with a traditional mortgage loan. The biggest difference is mortgage insurance. FHA loan borrowers are required to purchase mortgage insurance to mitigate increased risk to lenders from FHA adjusted credit and down payment requirements.

Aside from the requirement to purchase mortgage insurance, FHA home loans come with many of the same options as traditional mortgages. You have the ability to choose 15 or 30 year term lengths with fixed or adjustable interest rates. Depending on your goals for repaying the home loan you can choose to build equity at an accelerated rate or have the lowest payment possible.

If you can meet the minimum credit requirement of a score of 580 you can be approved to purchase the property if you have the minimum down payment and can document sufficient income to repay the loan. If you have trouble documenting sufficient income due to self employment or investment income there are stated income and bank statement programs that can get you approved. Contact one of our loan specialists today for more information.

Another advantage in this FHA loan definition is the ability to take advantage of streamline refinancing to lower your rate as your credit improves or rates go down. Streamline refinancing greatly reduces the amount of paperwork and processing time required to refinance. Streamline refinancing allows you to lower your monthly payment by taking advantage of lower interest rates.

Ready to get qualified for your next FHA mortgage loan? Contact one of our dedicated loan specialists today and we can help get you on the right path to loan approval.

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