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FHA Loan

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FHA Loans

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 your concerns over credit holding you back from purchasing a home? Is budget tight and you think you can’t save enough for a down payment? Did you know that the Federal Housing Administration guarantees loans to promote homeownership for people just like you? Here are the basics you need to know about FHA mortgage loans to get on the path to owning your own home.

What is FHA Loan?

The Federal Housing Agency (FHA) is a government agency that guarantees home loans for borrowers that might not otherwise qualify for a mortgage. The FHA does not make loans, they simply guarantee through insurance that the borrower will not default on the loan. If a homeowner with an FHA mortgage does default the insurance offsets any losses incurred by the lender, mitigating risk.

FHA financing mortgage insurance is what allows borrowers with credit scores as low as 580 to qualify when they normally wouldn’t be approved for a traditional mortgage loan. 

Who offers FHA loans?

FHA home loans are not offered by the government, they are handled by banks and lenders like any other home loan. The difference is that the government sets the guidelines for getting approved and guarantees loans that meet the criteria. 

Qualifying for an FHA home loan is not difficult. The better you can get your finances in order before applying the more affordable your loan will be. While it’s true you can be approved with a credit score of 500, you will be required to have 10 percent as a down payment. If you can get your credit score up to 580 by paying down the balances on your credit cards and making your payments on time the required down payment drops to 3.5 percent. You’ll also qualify for a lower interest rate by having a higher credit score.

How to Apply for FHA Loan

Applying for an FHA loan is not much different than applying for a conventional home loan. Many banks, credit unions and direct lenders offer FHA loans. You can also enlist the help of a mortgage broker to advise you on the best options for your home loan.

Just like a conventional mortgage you can configure your term length and interest rate to give you the lowest payment possible with a 30 year loan or choose a 15 year term to build equity at a faster rate.

How to Get FHA Loan Rates

The requirements for getting approved for this type of loan are straightforward. The minimum credit score for approval is 580. Your credit score determines how much your minimum required down payment will be. If your credit score is less than 580 you will be required to put 10 percent down. Above 620 your down payment drops to 3.5 percent. 

In addition to meeting credit and down payment requirements you must be able to document sufficient income with pay stubs and w-2s to be approved. If you’re trouble documenting enough income due to self employment or investment income here are stated income and bank statement programs that can get you approved for the home loan you need. Contact one of our loan specialists today for more information about these exciting programs.

Finally, the home you are purchasing must be owner occupied. You cannot finance investment properties with FHA loans.

Shop Around for a Better Deal

You might think “It’s a government FHA loan, why do I need to comparison shop?” While it’s true that program requirements are the same from one lender to the next, like any other home loan FHA interest rates today vary widely. Comparing as few as three quotes when taking out a home loan can save you thousands of dollars. 

Your credit score, down payment and debt ratio all contribute to the interest rate you’ll qualify for when applying for a home loan. Don’t be discouraged if the rate you get is higher than what you wanted. One advantage of this type of home loans is the ability to streamline refinance when interest rates drop or your credit improves enough to qualify you for a better interest rate.

Streamline FHA refinance means that lenders require significantly less paperwork and processing time to refinance your loan. Qualifying for a better rate because your overall credit improves could lower your payment and give you some much needed breathing room in your budget.

Are you feeling overwhelmed with all this talk of credit scores and down payments? We have mortgage loan specialists standing by to assist you with any questions and help you with the best loan options for achieving your financial goals. Contact our dedicated loan specialists today.

Do FHA loans Cost More?

It’s true that conventional mortgage loans cost less because borrowers with sufficient credit scores and higher down payment are not required to purchase mortgage insurance with their home loans. The added expense of mortgage insurance reduces the risk for lenders allowing many borrowers who would otherwise qualify to purchase homes.

You don’t have the option of terminating FHA loan insurance once you build up sufficient equity in your home; however, you may be able to qualify for a traditional home loan and refinance the FHA loan down the road, eliminating the need for mortgage insurance.

The added cost of mortgage insurance is why shopping for the lowest interest rates is so important. If you’re on a tight budget combining the lowest possible interest rate with the right loan options can give you an affordable payment that you can use to grow a positive financial outlook.

Are you ready to get started on the path to home-ownership with an FHA mortgage loan? Contact one of our dedicated loan specialist today and we’ll make sure you have the right home loan for meeting your financial goals today and in the years to come.

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