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Federal Housing Administration (FHA)

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What is an fha loan?

An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). They usually come with a lower down payment requirement and more lenient credit restrictions. In fact, the down payment on an FHA loan can be as little as 3.5% of the purchase price of the home, and they can be taken out on properties with up to four units, allowing qualified buyers to not only own their own home, but to potentially have rental income as well. Conventional mortgages have more stringent credit requirements, and the down payment is usually 20% of the home’s purchase price.

These qualities make FHA loans good options for those with average credit scores, first-time home buyers or borrowers who are developing or recovering their credit. With the backing of the FHA, lenders are free to offer better deals than they would otherwise.

While FHA loans may have more accommodating requirements than traditional mortgages, borrowers are required to pay insurance in order to make up for the lower closing costs and more generous credit requirements.  The insurance can be paid up front or monthly. Once the borrower has paid a certain amount of the mortgage, they will no longer have to pay the premium, or they can refinance to a non-FHA loan.

Why an fha loan?

FHA loans can be used to purchase a single-family home or multi-family residence with up to four units. They are available to borrowers who have filed for bankruptcy, provided it has been discharged for at least two years. Benefits of an FHA loan include: lower down payments, lower closing costs, and easier credit qualification.

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