FHA loans are popular among first-time homebuyers and are government-backed mortgages insured by the FHA (Federal Housing Administration). FHA home loans require lower down payments and minimum credit scores than most conventional loans. Even though the government insures these loans, they’re actually provided by FHA-approved lenders. Here is a list of 10 facts regarding FHA loans:

They help more folks become homeowners

Regulated by the FHA, which is part of HUD, (United States Department of Housing & Urban Development), FHA loans were set up during the Great Depression to boost long-term homeownership for preservation and growth of strong communities and neighbourhoods.

There are various kinds of FHA loans

In FHA loan qualifications, there are many types, like reverse mortgages for senior citizens aged 62 and up and 203(k) home improvement loans.

Limits do not always stay the same

Citing the consistent United States cost-of-living increases and housing market appreciation, the Federal Housing Administration announced 2021 loan limitations for Home Equity Conversion Mortgage insurance and Single-Family Title II forward programs will rise from $765,600 to $822,375.

Only specific lenders can offer FHA loan qualifications funding

The Federal Housing Administration does not provide actual home loans to borrowers, but they instead insure loans offered through approved mortgage lenders. It is better to find qualified lenders in your locality before you pursue this type of loan.

FHA loans need UFMIP

A Federal Housing Administration loan’s government-backed designation mandates that borrowers also invest in UFMIP (upfront in mortgage insurance premiums) to ensure the repayment of the loan. Paid in full during closing or rolled into month-to-month loan repayment, it varies from PMI (private mortgage insurance).

They only can be used for primary homes

Properties that are designated as a borrower’s primary home are eligible for such loans. Vacation homes, secondary and investment properties, would not qualify. However, FHA loans may be used to buy other primary residences, like co-ops, condos, and multi-family dwellings.

It’s possible to use FHA loans for home improvements

As previously mentioned, 203(k) loans may finance a fixer-upper or additional rehab properties. Borrowers obtain loan amounts based upon a residence’s anticipated value after any upgrades, repairs, or improvements.

The majority of 203(k) loans cover as much as $625,000 for purchase and any subsequent improvements, like structural and foundation problems, increased living space, flood and fire damage, and additional enhancements.

Reverse mortgages also are applicable

Borrowers 62 and up presently residing in a primary residence that has a low mortgage balance may switch over to a reverse mortgage. The Federal Housing Administration provides a HECM (Home Equity Conversion Mortgage) program which uses your residence’s equity as cash toward any remaining mortgage payments.

Usually, credit scores are not a contributing factor

With a conventional mortgage requiring a credit score of 620, a Federal Housing Administration loan is less strict. Borrowers who score as low as 580 still could be eligible for a 3.5% down payment.

Closing fees and costs are a part of the loan

In some cases, the FHA can authorize lenders, builders, and sellers to pay some of a borrower’s closing costs. They might include title insurance, credit reports, appraisals, and other fees.

These loans offer a road to homeownership for borrowers who have limited money for a down payment or lower credit ratings. Mortgage lenders are willing to take on such borrowers because their mortgage is insured by the FHA.