What Is A FHA Loan?

FHA, Federal Housing Administration, is one of the loan products that the government created to provide private mortgage insurance from approved FHA lenders.  It was set up to provide loans for low and median income families and to assist buyers in purchasing an affordable home.

Purpose

FHA Loan was implemented in 1934 to assist low to median income families to purchase homes. It provided insured loans for buyers that didn't have 20% down payment funds and couldn’t qualify for a Convention Loan that required a larger down payment to purchase a home. The down payment requirement for a Conventional Loan may have been 5% or 10% of the sale price.

No Credit Score

A FHA Loan doesn’t require credit scores to qualify for a loan. However, most lending institutions review their risk management assessment model for their company. The lenders require a minimum credit score to reduce the risk management assessment for the bank. FHA requires a down payment of 3.5% of the sale price from the applicant invested funds. If the applicant doesn’t have the funds saved, the applicant may receive a gift letter from a family member. The funds are verified from the family member’s account before the bank accepts the gift letter. The applicant must have a middle credit score of 640 out of all three credit bureau scores. The lender requires these documents for FHA loan approval as follows:

•  The last two years of 1040 from the borrowers
•  Three months of bank statements
• The recent 30 days' pay stubs
• Application Fee (appraisal and credit report)

2

New FHA Guidelines

On June 8, 2012 FHA increased their upfront Mortgage Insurance Premium to 1.75% on all FHA Loans and increases the annual Mortgage Insurance Premium to 1.50%. However, FHA had to increase the Mortgage Insurance Premium to cover the lost from the short sale and foreclosure loans. It costs the applicants more money to qualify for a FHA loan and it reduces the loan amount that an applicant may qualify to purchase.

Credit Score Below 600

There is an opportunity for buyers to increase their credit score if it’s below a 600 credit score. We provide techniques to increase an applicant’s credit score at www.increaseyourcreditscorenow.com. Most applicants with some good credit may increase their credit score within 30 days and qualify for a FHA Loan.