Before talking about who can get an FHA loan, it is important to clarify what one is because a lot of people aren’t quite sure. (Doing so will also help make clear who qualifies). FHA loans are mortgages backed by the Federal Housing Administration and issued by FHA-approved mortgage lenders that can be used to purchase or refinance new or existing 1-4 unit homes. The federal government backs, or insures, these loans in order to lower the down payment requirements, interest rates, and fees that would otherwise serve as built-in risk protection for lenders. In other words, it’s a way for the federal government to encourage lending to first-time home buyers who might have affordability concerns.
Now that you have a general sense of what FHA loans are and who they’re for, there are certain qualification criteria about which you should be aware.
• Borrowers with credit scores equal to or greater than 580 are eligible for maximum financing and therefore may be able to place down payments as low as 3.5%
• Borrowers with credit scores between 500 and 579 are eligible for a maximum of 90% financing, which means they will have to place a down payment of...