FHA loans, or Federal Housing Administration loans, are mortgages that the FHA insures. FHA loans are famous among first time home buyers where the down payment is as low as 3.5% for people with credit scores 580 and above. FHA also provides loans for people having credit scores less than 580 but the interest is 10%. In short lower the credit score higher the interest. FHA loans were introduced in response to the huge foreclosures and defaults that occurred in the 1930s. The introduction of FHA loans provided insurance to the lenders and also boosted the real estate market. FHA makes loans available at lower interests and it insures the lenders and reduces the risk.

Since an FHA loan is not that hard to avail like the conventional loans, two mortgage insurance premiums have to be paid. One is paid at the beginning upfront and the other is paid on a monthly basis. For an FHA loan to get its approval, the house needs to meet certain conditions. The upfront amount which has to be paid at the beginning is around 1.75% of the home loan and it is regardless of the credit score. The monthly payment is an amount based on the borrower’s loan to value (LTV) ratio, the size of the loan and the duration of the loan.

Following things are required for the approval of an FHA loan.

• The borrower must have a steady history of employment for at least two years.
• The borrower must have a Social security number which should be valid. He must be a lawful resident of the United State of America and should complete the legal age to sign the mortgage of the respective state.
• The borrower should pay a minimum down payment of 3.5% of the loan amount for getting the loan approved.
• FHA loans are only available for primary residency.
• The borrower must have a property appraisal and that can be done with the help of an FHA approved appraiser.
• The back-end ratio, that is the mortgage value plus all other debts which include credit card payment car loan, student loan and many other should be less than 43% of their gross income. Even a 50% is acceptable but the lender should provide a justification as to why it is safe for lending the borrower.
• The borrower must have a minimum credit score of 580 for getting the FHA loan approved at 3.5% interest. Borrowers between the credit score of 500 and 579 need to pay an interest of 10% for getting the FHA loan approvals.
• A borrower shouldn’t have a history of bankruptcy for the past two years and should establish a decent credit score. At certain special conditions, even one year from bankruptcy is also accepted for FHA loan approvals.
• The property the borrower is willing to buy with an FHA loan should meet certain conditions. If the seller doesn’t agree with the repair and the house doesn’t match as per the regulations, the borrower has to pay for the repairs apart from the premium and monthly payments.

Let us take a look at some of the pros and cons of an FHA loan

Pros of FHA loans

• FHA loans don’t require huge down payments, unlike the conventional loans. A meager 3.5% of the loan amount is the down payment on the FHA loans provided the borrower has a good credit history.
• Young and first time home buyers are best suited for FHA loans as they wouldn’t have much time to pay for the considerably huge down payment of the conventional loans.
• Even a history of bankruptcy or foreclosure is tolerated when availing for FHA loans.

Cons of FHA loans

• The borrower has to pay a premium apart from the monthly rental fee in the case of FHA loans.
• If the Credit score is poor, one may end up paying higher interests when compared to the down payment of a conventional loan.
• In FHA one has to pay the monthly premiums, unlike conventional loans where the borrower can stop the insurance policy once the buyer has enough equity in the home.
• FHA loans were primarily started for stimulating the housing industry in the favor of lenders, not the buyers.
• The paperwork required for getting FHA loans are more when compared to the conventional loans.

One can visit various sites to understand the current interest rates for FHA loans. Submitting a loan request with less than 20% down payment will show all the quotes available from the lenders on the site itself. One can filter the available loans on FHA mortgage rates. For checking the eligibility one can feed in their credit score, debts and monthly income. A suitable lender can be contacted from the site itself.