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An FHA home loan may get you into a home with a low down payment.

One of the biggest hurdles that first-time homebuyers face is saving up for a sizable down payment on a home.

Sacramento FHA loans written on the model of home.

An FHA home loan provides a government-insured loan with flexible loan options.

Even experienced homeowners may need to plan for a long time for a new home purchase. Fortunately, FHA loans may help some buyers get into the home of their dreams with a lower down payment.

What Is an FHA Loan?

FHA loans are mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions, that provide FHA loans provide funding for home purchases while requiring a lower down payment. That allows buyers to get into a new home with as little as 3.5% down.

Using conventional loans, a lower down payment requires the borrower to get private mortgage insurance. This special type of insurance protects the lender in case the borrower is not able to pay. The cost of PMI is added to the monthly payment until the amount of the loan paid off reaches 20%.

FHA loans, on the other hand, do not require PMI because they are backed by the U.S. government. But additional scrutiny is often required during the loan application process using an FHA loan.

What Is Required for an FHA Loan?

Many of the same documents are required for an FHA loan that any potential lender will want to see: employment history, appraisal and debt-to-income ratio. A few additional stipulations are also attached to the FHA loan process.

Buyers may have to provide 3.5% of the purchase price as a down payment, more if they have a credit score below 580. FHA loans are available only for the borrower’s primary residence.

Credit requirements may also be lower for FHA loans, as long as other factors demonstrate that the borrower is able to manage their money responsibly. Each lender looks at individual applications and may ask for additional documentation or explanations. They are often able to work with buyers who have a lower credit score or shorter credit history than in other situations.

How FHA Loans Work

  • Purchase your home with as little as 3.5% down payment (compared with the 20% required on most loans).
  • 30-, 25-, 20- and 15-year terms are all available with fixed rates.
  • Five-year adjustable rate mortgages are available.
  • Pay off your mortgage at any time without pre-payment penalties.

Have questions? Give us a call! One of our mortgage specialists would be happy to answer all your questions.

**New Way Mortgage, Inc. is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA or the Federal Government.

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