FHA Loans

FHA Loans Are Good For:

FHA loans are often a better fit for home buyers who have a lower credit score or less saved for a down payment. They are especially helpful for first-time buyers who need more flexibility.

What is an FHA Loan?

A Federal Housing Administration (FHA) loan is a home mortgage that is insured by the government and issued by a bank or other approved Lender like Fidelity Direct Mortgage, LLC (FDM) or other Financial institutions that are approved by the agency.
If you have a credit score of at least 580, you can borrow up to 96.5% of the value of a home with an FHA loan. That means the required down payment is only 3.5%.If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment. Though most loans must receive an Approve/Eligible or Accept status from Automated approval Systems (AUS), FHA loans allow for Manual Underwrite requiring lower DTI (Debt to Income) ratios.
There are many types of FHA Loans including 203K (Limited and full) to help get a mortgage for purchase and funds to repair or upgrade the house. Though Lenders may place their own limits on DTI in order to limit risk, FHA loans allow 47% (Housing to income) and 57% (total debt to income) ratio. FDM follows agency and other DPA (Down payment assistance) guides for DTI or other guidelines and does not place additional overlays allowing our clients to get the mortgage the way it was intended.

FHA Loans are bit more easier in their debt to income and credit requirements. Homebuyers often choose FHA loans if they’ve had rough patches in their credit history. FHA guidelines set lower minimum score requirements than conventional loans:

•     You’ll need at least a 580 score if you’re making the minimum 3.5% down payment.
•     You’ll need at least a 500 score for the 10% down payment.

Borrowers with major credit events like bankruptcies or foreclosures also get a break, compared to the more stringent conventional lending guidelines:

•     You’re eligible for an FHA loan two years after a chapter 7 bankruptcy (compared to four years for a conventional loan).
•     You’re eligible for an FHA loan three years after a foreclosure (compared to seven years for a conventional loan).

Why Take out an FHA Mortgage Loan?

From a home buyer’s perspective, the main reasons to apply for an FHA home loan are:

•      If you’ve been rejected by traditional lenders
•      If you don’t have sufficient money for a 20% down payment

FHA home loans provide borrowers with poor credit, a path to home ownership for a down payment of 10% or less. Active and former members of the Military, National Guard, and Reserves who have poor credit or a lack of funds can apply for a VA loan. For anyone else who can’t get approved for a conventional mortgage, an FHA mortgage loan is usually the best type of loan for getting into the housing market. FHA loans are especially popular with first-time homebuyers, with 82% of first-time borrowers using an FHA loan in 2017.