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Understanding and Using the FHA Loan
If you are looking to buy a home in a rural area and don’t have a lot of money for a down payment, an FHA loan may be the perfect solution for you.
What is the FHA Loan?
The FHA Loan is a mortgage backed by the Federal Housing Administration, FHA. Similar to the VA Loan for Veterans and Military members, the FHA Loan provides a guarantee for the lender that your loan will be honored by the FHA. This additional measure of assurance allows lenders to approve mortgages with a lower down payment required.
Who Can Use the FHA Loan?
In order to use the FHA loan, your income needs to be under a certain threshold, and you have to meet minimum credit requirements. If your credit is below 580, you may still be able to qualify for an FHA loan. You will need to put down a higher down payment, however.
The typical down payment for the FHA Loan is 3.5% of the purchase price of the home. If you have a lower credit score, it can be as much as 10%. While not exclusively for first-time homebuyers, the FHA Loan was designed to help those just getting into home ownership qualify without having a substantial down payment.
The property that you plan to purchase also has to be within a designated area for FHA Loans. These are often rural areas but can also be suburbs or small towns. You can find out if your potential home qualifies at the FHA website.
How Do I Use the FHA Loan?
To use the FHA loan, you will still need to apply with a third-party lender. This can be a bank, credit union, or private lender. Let them know that you are interested in the FHA Loan and see if they offer that option. A reputable lender will be familiar with this program and able to tell you about the requirements and how it could work for you.