What Are FHA Loans

Dated: 01/06/2020

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What Are FHA Loans?

FHA loans are loans backed by the Federal Housing Administration, or FHA… meaning, if you default on your loan, the federal government will make the payments to the lender for you.

This is a great loan program for those who don’t have stellar credit or for those who make too much to qualify for MassHousing lending.

FHA loans:

  • Require only 3.5% down with a credit score as low as 580… and if you can muster 10%, you may be able to be as low as 500

  • Allow you to receive a financial gift from family

  • Allow a seller closing credit of up to 6% of the loan amount, and

  • Can be used to purchase single-family, multi-family, condos and townhomes

FHA loans are also a great option if you’ve had a recent bankruptcy or foreclosure as you can qualify as soon as 2-3 years after your financial hardship; Definitely not the case with conventional financing.

If a home needs repairs, FHA loans can be used to pay for home improvements through their 203k programs… so you only need 1 loan.

With everything great about FHA loans, there has to be a downside, right? The downside to FHA loans are:

  • FHA has maximum loan amounts based on the county you live in. Here's a link to check limits in your area. (https://entp.hud.gov/idapp/html/hicostlook.cfm)

  • FHA interest rates also tend to be a little higher than conventional rates from 25-50 basis points (.25% - 0.50%).

  • They have higher closing costs

  • If you’re looking at a condo, the complex needs to qualify or the lender can now approve a single unit in a complex with 5 or more units.

  • They require mortgage insurance if you don’t have 20% to put down… and, depending on the length of your mortgage, you may have to refinance in order to eliminate the mortgage insurance, and finally

  • The home must meet the Department of Housing and Urban Development, or HUD, guidelines for health and safety… so peeling paint, torn screens, broken windows, loose handrails, or other safety issues can potentially derail the purchase.

If you have any other questions about the FHA loan program or if you want my help finding your first, or next, home, reach out to me at ryan@HomeSmartFirstClassRealty.com or call me at (508) 297-7270.

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