Qualifying for a Low-Down FHA Loan

FHA (Federal Housing Administration) lending is soaring – with good reason. These mortgages are affordable, flexible and available. In fact, terms are so attractive that some may ask why all home buyers don't use FHA mortgages.

Since the housing bust began, FHA lending has soared to account for 20% of the total dollar volume in home loans – up from just 3% in 2006. FHA loans are especially attractive for homebuyers with steady incomes who cannot scrape together a 20% down payment because FHA lenders will finance up to 96.5% of the home price.

Although these loans target low- and moderate-income Americans, there are no income restrictions. However, FHA does limit the amount that can be borrowed, based on area home values.

In addition, borrowers must pay an up-front insurance premium totaling 1.75% of the loan, which goes into FHA's fund for repaying lenders if borrowers default. So if you take out a $200,000 loan, you would need $3,500 at closing, in additional to normal costs.

The one class of borrowers who may be slightly better off with conventional mortgages are ones with very high credit scores who make substantial downpayments.
 

.