The FHA loan is a government-insured mortgage that enables eligible borrowers to put down as little as 3.5% on the purchase of a home*
The Federal Housing Administration (FHA) doesn’t issue FHA loans. Instead, this agency insures FHA loans issued by FHA-approved private mortgage lenders, such as Atlantic Coast Mortgage. Government insurance of this mortgage product makes it possible for lenders to offer competitive interest rates to borrowers who have a small down payment and less-than-perfect credit history.
FHA loans come with mortgage insurance premiums (MIP), which borrowers pay. This insurance coverage is required because you’re putting down less than 20 percent. The insurance coverage is to protect FHA-approved lenders from borrowers who default on the loan.
There’s upfront insurance and annual insurance. Currently, the upfront insurance rate is 1.75 percent for new FHA loans. The annual insurance rate can range from 0.45 to 1.05 percent depending on your loan amount, loan term, and down payment.
We will review your finances and credit to determine the down payment you qualify for. Borrowers with average credit scores or better can generally qualify for 3.5% down as long as you meet conditions.
You may still be able to obtain an FHA loan with less-than-stellar credit, but the down payment could be 10 percent. Gift funds from family members and grant money may be accepted for your down payment as well.
An FHA loan has to be for your primary residence and you must have stable employment to qualify. One myth is that the FHA loan is just for first-time homebuyers. If you relocate or outgrow a home, you may still be able to use an FHA loan on your next purchase. You also may be able to use an FHA loan to purchase a multi-unit rental property as long as you live in one of the units. Borrowers who’ve experienced a bankruptcy, foreclosure or short sale could be eligible for an FHA loan if several years have passed.
Your debt-to-income ratio (DTI) is also a factor that will be reviewed to determine if you can afford the mortgage payment. DTI is a comparison of your debt to your income, and it’s expressed as a percentage.
There are two types of DTI ratios — the front-end and back-end DTI.