FHA

What is an FHA Loan?

An FHA loan allows you to buy a house with as little as 3.5% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for a first time buyer, or anyone with limited down payment funds, to buy a home.

The FHA (Federal Housing Administration) does not make home loans, it insures them. If a home buyer defaults, the lender is paid from the insurance fund. This is a perfect mortgage solution for those starting out or those having a difficult time qualifying for a conventional loan.

FHA Loan vs. Conventional Home Loans

The main advantage of an FHA loan is that the credit qualifying criteria for a borrower is not as strict as conventional financing.  A FHA loan will allow the borrower who has had a few “credit problems” to buy a home. FHA loans will require a reasonable explanation of these derogatory items, but will approach a person’s credit history with common sense credit underwriting. Most notably, borrowers with extenuating circumstances surrounding bankruptcy that was discharged 2 years ago can work around the credit hurdles they created in their past. Conventional financing, on the other hand, relies heavily upon credit scoring.

I’ve had a bankruptcy in recent years. Can I get an FHA loan?

Generally a bankruptcy will not preclude a borrower from obtaining an FHA loan. Ideally, a borrower should have re-established a minimum of two credit accounts (such as a credit card, car loan, etc.) and wait 2 years since the discharge of a Chapter 7 bankruptcy or have a minimum of 1 year of repayment with a Chapter 13 (the borrower must also seek permission of the courts to allow this). Furthermore, the borrower should not have any late payments, collections, or credit charge-offs since the discharge of the bankruptcy.

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