What is an FHA Loan? An FHA loan is one of the most popular loans for borrowers because of the low down payment and more lax lending standards. It is a mortgage insured by the Federal Housing Administration. During this type of loan the FHA actually pays for the mortgage insurance so that the lender doesn't have to. Are you interested in applying for an FHA loan? If so, there are some facts that you may want to review before hand.
While your credit doesn't have to be perfect, the higher your credit score the lower your interested rate will be. For instance if you have over a 580 credit score you are most likely eligible for a 3.5% interested rate. However if your credit score ranges from 500-570 you may be looking at 10%. Most people with less than 500 will not be approved for an FHA loan.
Most FHA loans only require a down payment of 3.5%. This is one of the main things that makes an FHA Loan so attractive. You can use any monies from savings or can use a gift from a family member or friend.
With an FHA loan some of the closing costs may be covered by the lender. These costs may include appraisal, title charges, or credit report. Sometimes the builder of your new home may cover the closing costs as well if you are a first time home buyer. Many times when this happens the lender will actually increase the interest rate. So depending on how much cash you have, it may be worth paying for these items out of pocket.