Less rigorous lending standards and lower down-payment requirements make FHA loans popular with mortgage borrowers.
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
Why people get FHA loans
Because of that insurance, lenders can -- and do -- offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements. The FHA is an agency within the U.S. Department of Housing and Urban Development.
Here are 7 facts that borrowers should know about FHA loans.
#1. Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5%, the borrower needs a credit score of 580 or higher.
Those with credit scores between 500 and 579 must make down payments of at least 10%.
People with credit scores under 500 generally are ineligible for FHA loans. The FHA will make allowances under certain circumstances for applicants who have what it calls "nontraditional credit history or insufficient credit" if they meet requirements. Ask your FHA lender or an FHA loan specialist if you qualify.