The most common government loan is an FHA loan. “FHA” stands for Federal Housing Administration, which insures FHA loans. The federal government insures loans through the approved lenders in order to reduce the risk of a loss to the lender in the case of a homeowner defaulting on their mortgage.
Mortgage insurance premiums are part of this protection. Through this system, borrowers pay an upfront fee and a monthly premium. Generally, the mortgage insurance stays in place for the life of the loan. By having these standards and this protection, the FHA is able to lend to borrowers with lower credit scores, and with options for low down payments.
FHA loans are an especially good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.
The down payment required from borrowers will depend on their credit score, however. If you have a credit score of at least 580, the required down payment is only 3.5% as of 2022. If your credit score falls between 500 and 579, you could still get an FHA loan as long as you can make a 10% down payment.
Keep in mind that the FHA will only insure loans up to a certain maximum amount. These loan limits are calculated and updated annually. For more information on mortgage limits for your area, click here.
When you are ready to purchase a home, the team at Dream Home Lending would love to meet with you to go over your homebuying options and pre-approve you for your loan. Call us today to set up an appointment!
