FHA loans have more lenient qualification requirements
It’s easier to qualify for an FHA loan than for a conventional mortgage. FHA loan rules make allowances for borrowers who might not have an extensive credit history or who need to use gift money to make a down payment, for example. Here are the basic requirements to apply for an FHA loan:
• Credit score of 500 or higher.
• Debt-to-income ratio of 50% or less.
• 3.5% minimum down payment.
• The home must meet the FHA’s minimum property requirements and be your primary residence.
FHA home loans require mortgage insurance
FHA mortgage insurance is mandatory for all FHA loans. Unlike the private mortgage insurance paid by conventional borrowers who put down less than 20%, FHA mortgage insurance can’t be canceled just because you gain sufficient equity.
FHA loans can be used for different types of homes
FHA loans aren’t just for single-family homes. Guidelines for buying FHA-approved condos recently broadened, and you can also use an FHA loan to purchase a multifamily home or a manufactured home.
FHA loan terms may vary by lender
While the FHA sets minimum requirements, individual FHA lenders may have stricter standards. For example, a lender might set their minimum credit score for an FHA loan at 580 rather than 500.
FHA loans come with property requirements, too
As part of the home-buying process, your lender will have an FHA-approved appraiser check out your future home to be sure it meets the FHA’s minimum property requirements. The FHA appraisal is separate from a home inspection.