FHA Loans

FHA loans are insured by the Federal Housing Administration (FHA). This insurance offers lenders protection in case of default. FHA loans are typically ideal for first-time homebuyers or those with limited savings or credit concerns – especially since FHA loan underwriters allow non-traditional lines of credit, like car insurance payments and utility bills.

An FHA loan down payment can be as low as 3.5 percent and may come from an eligible gift. Financial reserves beyond the immediate closing costs aren't required, which can help FHA borrowers save in upfront costs. An FHA borrower could also apply for a loan with a non-occupant co-borrower (like a parent) to help offset any credit qualification issues.

These loans are relatively easy to refinance and are relatively forgiving of bankruptcies and foreclosures. They simply require a two-year wait time following a major credit event. However, be prepared for stricter appraisals, strict accounting of income, and lower loan limits. Only primary residences are eligible for FHA loans. So if you want to purchase an investment property or vacation home, you'll have to look into a conforming or jumbo loan.

Benefits of an FHA Loan:

• As low as 3.5% down payment required
• Down payments may be gifted
• Less stringent credit requirements
• No cash reserves required for reduced out-of-pocket costs
• Relatively competitive interest rates
• Allows the buyer to co-sign with a co-borrower who won't be living in the home