FHA makes it easier for consumers to obtain affordable home loans made by private lenders to eligible borrowers. For loans that meet FHA’s guidelines, FHA offers lenders mortgage insurance to protect them against losses in the event that a borrower defaults on their loan. This insurance reduces risks to lenders and allows them to offer mortgage financing to more potential home buyers. Anyone can qualify for an FHA insured loan as long as they: 1)Meet FHA’s mandatory credit requirements, 2) Can afford the mortgage payments and mandatory up-front investment, 3) Plan to use mortgaged property as a primary residence. The minimum down payment requirement for an FHA loan is 3.5% of the purchase price. Besides a borrowers own funds, cash gifts may be acceptable, down payment assistance funds may also be available within certain geographical areas.
FHA is generally more flexible than conventional loans in its qualifying guidelines. Among them are lower credit score requirements and debt to income ratios. These more flexible guidelines have made FHA financing most popular for the first-time home buyer.
First-time homebuyers are currently making up 37% of the buying market and since 2006, FHA’s market share has increased from 3% to 30%.