3.5% down is all that’s necessary on a FHA loan. If one has a credit score between 580 and 720, this may be the best loan option. If a borrower has a bankruptcy or foreclosure in the last 2-3 years, FHA may be the way to go. FHA loans are regulated by Housing and Urban Development (HUD). The main goal of the department is to promote first-time homeownership and provide safe loan parameters that allow clients with low money down or low credit scores to still qualify for a home. In general, HUD is more lenient on riskier borrowers. Now, the flipside to risk is protection, by way of insurance. HUD requires an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the base loan amount, which typically is added into the loan itself. In addition, HUD requires a monthly mortgage insurance that can range between .80% and .85% depending on the down deposit. I’ve recommend FHA loans to many of my clients. These loans are, in some cases, smarter than Conventional financing. Because many clients can qualify for both FHA and Conventional Financing, it’s wise to compare both options and allow the client to choose the one that fits the best. Ask me about how first-time homebuyers can take advantage of down payment assistance and discounted property taxes through CALHFA.
FHA loans are loans that are backed by the Federal Housing Administration, which is a division of the U.S. Department of Housing and Urban Development, or HUD. First time homebuyers and people with lower credit scores are the ones who typically benefit from this type of loan. Borrowers with higher debt ratios and more monthly debt can qualify for an FHA loan than would be able to with a conventional loan. FHA loans allow the borrower to put a minimum of 3.5% down payment. And the funds can come from a gift or a grant.