Learn More About FHA Home Mortgage Loans

An FHA home loan is a mortgage insured by the Federal Housing Administration. These mortgages are backed by the federal government, which helps FHA-approved lenders extend home financing to buyers who are unable to qualify for a conventional home loan.

The FHA doesn’t issue mortgages—the agency provides insurance on mortgage payments, so more borrowers are able to attain home financing through an FHA-approved lender such as a bank. Mortgage insurance premiums are the cost of having the FHA guarantee your loan, which is used to protect the lender from a loss if you are unable to pay the loan back.

FHA loans are designed to make homeownership more affordable. Although they were originally intended for borrowers with less than perfect credit, they are now popular with a wider group of borrowers.

Since there are many FHA home loans, and FHA loan requirements vary depending on the loan type, the credit stipulations are usually more lenient while the loan requirements are stricter.

• Less than perfect credit is not disqualifying.
• Low down payments.
• Gifts or grants allowed toward down payment.
• Sellers, builders, or lenders may pay some of the borrower’s closing costs.
• Higher home inspection standards.

For those who are self-employed, you will need two years of tax returns and an up-to-date balance sheet and profit and loss statement to qualify for an FHA loan. If you have been self-employed between one to two years, you may still be eligible for an FHA loan if you have a good work and income history for the two years leading up to becoming self-employed and you are in the same or related occupation.

Even if you have filed for bankruptcy or been foreclosed upon, you can still qualify, so long as you’ve rebuilt your credit. Usually, the waiting period is three years after a foreclosure and two years after a bankruptcy. Generally speaking, the lower your credit score and down payment, the higher your interest rate will be.

Although most loans will require mortgage insurance payments if the down payment is under 20%, all FHA loans will require borrowers to pay an upfront mortgage insurance premium of 1.75%, as well as monthly mortgage insurance.