FHA loans are government-insured loans backed by the Federal Housing Authority. Private mortgage lenders fund the local home loans, but the government insures them against default. FHA loans offer a very low down payment to obtain the loan.
Traditional home loans require a minimum of 5% down, while FHA loans require as little as 3.5%. A great option with an FHA loan is the down payment may be a gift from approved sources such as family. FHA loans offer the same interest rate for all borrowers, so there is no interest rate penalty for those who have credit issues. FHA loans give credit-challenged or bad credit home buyers the ability to qualify at rates they could not get on conventional mortgages. The amount of debt you can have is higher and credit scores can be lower than a conventional home loan. You can qualify for an FHA mortgage in as little as two years after a bankruptcy and three years after a foreclosure.
FHA loans can also be refinanced with what is called an FHA Streamline Refinance. This allows you to reduce the interest rate on your current home loan quickly and often without an appraisal. FHA Streamlined Refinance also cuts down on the amount of paperwork which must be completed by your home lender — saving you valuable time and money!