2023 FHA Loan
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What Is a FHA Loan?
The FHA, or the Federal Housing Administration, is a part of the U.S. Department of Housing and Urban Development. Created in 1934 in response to the housing crisis caused by the Great Depression, the FHA is dedicated to helping more people become homeowners.
The FHA was created to help stop an increase in foreclosures and make owning a home more affordable for Americans. The FHA insures mortgages for up to 80% of a home’s value (up from the 50 to 60% that was previously the norm for home loans). This makes loaning money to home buyers less risky for lenders and, in turn, helps them to offer more and better mortgages to future homeowners
FHA property standards
Upon inspection, the house must meet all FHA appraisal guidelines, which is an extensive list. Overall, the appraiser will look for three things.
- Safety: The house should provide a safe and healthy environment.
- Security: The property should offer its occupants protection.
- Soundness: The home shouldn’t have any structural defects.
The appraiser will look for things like functioning water, heat, and utilities. Additionally, electrical outlets and switches must function properly. Windows and doors must open and close safely, and roofing cannot be leaking. Essentially, the appraiser will be trying to determine if the house is structurally sound and safe.
Benefits of FHA Loan
Loan Requirements & Process
FHA loans come in a variety of loan types, ranging from standard loans to loans that are tailored to meet very specific needs. Some common FHA loan types include:
- Minimum of 3.5% down payment, possibly more (depending on your credit score)
- Credit score of 589 or higher (though other lenders will likely require higher scores!)
- Debt-to-income ratio of less than 50% of your pretax income
- Property approval ensuring that the property meets the FHA’s minimum property requirements via an FHA-specific appraisal
- Mortgage insurance, which is built into the loan but includes an upfront mortgage insurance payment
