An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). FHA loans are very popular, especially among first time home buyers because they allow downpayments as low as 3.5% for credit scores of 580 or higher. However, borrowers must purchase mortgage insurance, which protects the lender if a borrower defaults on their loan. The borrower’s credit score may be between 500 – 579 if a 10% downpayment is to be made. It is important to remember though, that the lower the credit score, the higher the interest borrowers will receive in turn.
The FHA loan program was created in response to the wave of foreclosures and defaults that occurred in the 1930s in order to provide mortgage lenders with adequate insurance and to help stimulate the housing market by making loans more affordable and accessible to people with less than stellar credit or a low downpayment. The federal government insures loans for FHA-approved lenders to reduce their risk of loss if a borrower defaults on their mortgage payments.
Interested in an FHA loan? Contact me today to learn more. Your Burbank mortgage lender.