FHA loan is the loan which is insured by The Federal Housing Administration (FHA) helping people buying from 1-4 unit properties . In case, the borrower defaults, the FHA will pay. Howerver, FHA will collect an amount of money from borrowers to insure the loan, called PMI (Private Mortgage Insurance)
- 3.50% low down payment required on purchase.
- Low closing costs
- Easy credit qualifying: minimum credit score usually 620.
Post-bankruptcy qualifying - 2 years after.
Post-foreclosure qualifying - 3 years after.
The borrower has more down payment (20%, 25%...) and low credit scores, he cannot qualify for conventional loan. FHA will help him to get the loan with easy credit qualifying.
-The borrower must pay upfront and monthly PMI ( usually from 0.5 to 1 % of the entire loan amount)
-PMI now goes with the whole life of the loan, and it is hard to cancel, except borrowers do refinance the house when home equity goes up 20%