Federal Housing Administration (FHA): What is FHA?

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What is FHA?

The federal housing administration or FHA in short gives insurance on loans provided by FHA-approved moneylenders such as banks, credit unions, etc. These mortgages are called FHA loans and they cover single-family homes, multifamily homes, hospitals, and many more.

This government institution provides protection to lenders when their borrowers default on their mortgages. According to the U.S department of housing and urban development (HUD), the FHA is the only government entity that operates on its own generated income and it started in 1934. The federal housing administration is one of the largest mortgage insurance providers in the world.

Qualification for FHA loans

Although the FHA loans are some of the easiest ones to get, there are minimum qualifications that each borrower must meet to get the loan. The following are a few of the many requirements for FHA loans.

The house must meet the federal housing administration requirements and it should be the buyer’s primary residence
You need a debt to income ratio of 50% or less
A credit score of 500-579 is needed for a 10% down payment
A credit score of at least 580 with a down payment of 3.5%
Your credit score must be at least 500

Benefits of the federal housing administration loan

FHA loans are very flexible compared to other forms of loans. This is because they have different down payment requirements. So, homebuyers do not need to break the bank when buying their dream homes.

In addition, buyers do not need to have a good credit score to qualify for these loans. The federal housing administration makes sure that even people with bad credit scores can find a place they call home.

Homebuyers must understand that the smaller the down payment, the more their monthly payments will be. In other words, when you put down a small amount, your mortgage principal becomes more. This results, in high-interest charges. In the end, the house will cost you more money due to interest charges.