FHA Home Loan Defined
FHA home loans are loans guaranteed by the federal government through the Federal Housing Authority. If a borrower qualifies for an FHA home loan, the FHA insures the lender against a borrower’s default on the loan. In the wake of the Great Depression, the Federal Housing Authority was established as part of the National Housing Act of 1934 with the purpose of accelerating house construction while reducing unemployment. Over the years, the FHA has helped many low income people purchase new homes. The program is funded in part by the borrower who must pay a small insurance premium, but then receives a low interest rate loan from the lender.
Qualifications for an FHA Home Loan
FHA home loans are not difficult to qualify for, and will yield a low-interest loan with a smaller down payment than what’s required with conventional loans. The basic qualifications are you must have worked consecutively for two years and had a steady or increasing income. Your credit report shouldn’t show more than two thirty-day late payments and your score should be at least 620. If you’ve declared bankruptcy, it must be at least two years old, and foreclosures must be at least three years old. And your mortgage payment can’t be more than 35% of your gross income.
Applying for an FHA Home Loan
In order to apply for an FHA home loan, you’ll have to find a lender. The U.S. Department of Housing and Urban Development (HUD) has a lender list in which you can search for an FHA lender in your area. Information you’ll need to submit in your FHA home loan application includes your most recent two years tax returns, most recent pay stubs for one month, three months of bank statements (you don’t need bank accounts in order to qualify), bill statements, and personal information such as a copies of your driver’s license and social security card.