FHA loans are loans that are insured by the Federal Housing Administration. A borrower who takes out an FHA loan will pay for mortgage insurance, and if they default on the loan, then the lender is protected from financial loss because the FHA covers the default.
This means that it is possible for a mortgage lender to use less rigorous standards, and that they can enjoy lower down-payment requirements. FHA loans are, as a result, quite popular with borrowers who would not otherwise be able to get on the property ladder.
An FHA loan can be offered at an attractive interest rate, and the checks that are performed on the borrower are not as intensive. However, they are still mortgages, and this means that borrowers must pay them back on time otherwise, they will end up at risk of losing their homes.
The minimum credit score that is required to get a mortgage under the FHA loan system will depend on the down-payment that they can make. To make a slight down-payment (for example 3.5 percent), you would need a credit score of 580 or more. Those who have lower credit scores (500+) will need to make a down-payment of at least ten percent. If your credit score is below 500, then it is unlikely that you would be able to get an FHA loan at all, although there are some options for people who do not have a traditional credit history, assuming that they do now have the income required to support the payments. It’s a good idea to talk to the FHA lender or meet with an FHA loan specialist to find out refinancing option. You may be able to get on the property ladder after all, but you will need to prove your income.