FHA mortgages are a great way for people with challenged credit to purchase a home. The minimum down payment they can have is 3.5%, however it can be used in conjunction with down payment assistance programs so there’s minimal cash to close for borrowers. (See down payment assistance page for more information on that). FHA is insured by the government so there are specific guidelines and requirements that have to be met. There is upfront Mortgage Insurance required with the loan, however that can be added to the loan amount so it doesn’t increase the cash to close for the loan. There is also monthly mortgage insurance that is a maximum of .85% and then can be lower when there is a higher down payment. If you have a down payment that’s less than 10% down the mortgage insurance stays for the life of the loan until you sell or refinance. If your down payment is more than 10% the Mortgage insurance falls off the loan after 11 years, similarly to how it works with conventional financing. A common misconception about FHA loans is that the approval process as well as the appraisals are more challenging than with conventional and that is simply not the case.
Recently, I was helping a borrower that had great income, low debt to income ratios, however there were challenges to his credit score that he simply was not aware of. Depending on the time line, I would either recommend working with my local credit improvement specialist to improve the credit or buy the home using FHA financing. He found a home he loved, made an offer on it and later we were told the listing agent didn’t accept the offer because they didn’t want to deal with an FHA appraisal. However, that may have been the case years and years ago, it’s simply not the case anymore. I personally called the listing agent to discuss their concerns and they decided to accept the offer and everything went smoothly. They buyer closed on time before their lease was scheduled to increase and is now another Happy Homeowner. I’d love to help you or someone you know become a Happy Homeowner as well.