An Federal Housing Administration (FHA) loan is a type of mortgage that is insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development (HUD). FHA loans are designed to help people with lower incomes and credit scores purchase a home by providing a lower down payment and more relaxed credit score requirements.
Here are some reasons why you might consider an FHA loan include:
- Lower down payment: FHA loans typically require a down payment of just 3.5%, which can make it easier for first-time homebuyers or people with limited savings to purchase a home.More relaxed credit score requirements: FHA loans often have lower credit score requirements than traditional loans, making it easier for people with lower credit scores to qualify.
- Flexible underwriting standards: FHA loans can be easier to qualify for because they use more flexible underwriting standards, such as considering income from non-traditional sources and taking into account a borrower’s history of timely rent payments.
However, it is important to consider the trade-offs of an FHA loan, such as the upfront and ongoing mortgage insurance premiums, which can add to your monthly payments. Additionally, some lenders may have stricter requirements for FHA loans, so it’s important to compare offers from multiple lenders to find the best option for your situation.