If you’re a renter in the United States, chances are you already pay a large monthly payment towards rent and other common household expenses, like utilities, cable and internet. Sometimes, getting a mortgage can actually reduce the amount you’ll pay each month, and you’ll be making payments on a house you’ll own. 

But purchasing a house may seem like an implausible idea, especially if you don’t have enough saved for a 20 percent down payment or your credit history isn’t fantastic. Fortunately, you may still be able to buy a home with a FHA-insured loan from the Federal Housing Administration (FHA).

Save Big With a Low-Interest FHA Mortgage

An FHA loan for first-time home buyers is an excellent option because: 

  • FHA loans are for bad credit, good credit and everything in between. 
  • You’ll only need a down payment of 3.5%. 
  • Typically, an FHA loan interest rate is lower, because loans are insured by the FHA. 
  • Loans only require a debt-to-income (DTI) ratio of 43% or less. 

Generally, you may get pre-approved for an FHA loan if you have a credit score of at least 580. However, borrowers with scores as low as 500 can qualify for FHA mortgage pre approval with a down payment of 10% or higher. 

There are two types of FHA home loans to consider when you apply for a FHA loan: 

  • FHA 203(k) loan
  • FHA 203 (b) loan 

An FHA 203(b) loan are standard FHA home loans that can be used towards purchases within a purchase limit. These limits are often generous and based on where you live. Mortgages are usually between 15 and 30 years. 

An FHA 203(k) loan is used to purchase or refinance homes that need modifications or repairs. These loans can either be used towards refinancing an existing FHA loan or a new purchase, with estimated repair or modification costs added to the overall loan amount. For a home to qualify, expected expenses must be at least $5,000 and property values must still fall within FHA loan limits. The improvements and repairs that may qualify include: 

  • Eliminating health or safety hazards. 
  • Structural alterations or repairs. 
  • Modernization to improve a home’s function.
  • Repairing or replacing plumbing. 
  • Changes that improve a home’s appearance. 
  • Adding or replacing gutters, downspouts or roofs. 
  • Adding or replacing floors.
  • Floor treatments. 
  • Major site improvements and landscaping. 
  • Improving energy efficiency. 
  • Making a home more accessible for disabled or elderly persons. 

In addition to these FHA loans, homeowners can also refinance their existing FHA mortgages through a simple FHA refinance program to obtain lower monthly payments or better loan terms later in their loan.

Updated on 08/24/2022