So, a first time home buyer with questionable credit history can obtain a loan at a reasonable rate, provided that certain conditions are met: a borrower must have a mostly positive two-year credit history, be earning consistent income, and have at least two years of steady employment. Borrowers must also obtain mortgage insurance, and the monthly insurance premium (MIP) is added to the mortgage payment.īecause the loan is being guaranteed by the FHA, borrowers are more likely to be approved since lenders are protected from losses in the event of a borrower default. This is an upfront cost and monthly premium referred to as upfront mortgage insurance premium (UFMIP), currently equal to 2.25 percent of the mortgage amount. FHA loans only require a 3.5 percent down payment and also have more lenient credit and underwriting requirements than conventional loans.īorrowers are also required to pay an FHA funding fee. Although the FHA generally places limits on total loan amounts, these limits have been raised in locations like San Diego that have higher average home prices.įHA loans are ideal for first time homebuyers who may not be able to obtain a conventional mortgage loan whether because they cannot make the required 20 percent down payment, have blemished credit scores, or lack a credit history. Instead, this agency guarantees loans made by private lenders that have been approved by the Department of Housing and Urban Development (HUD).

The Federal Housing Administration (FHA) is not a direct mortgage lender.

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