An FHA loan is a mortgage insured by the Federal Housing Administration. With a minimum 3.5% down payment for borrowers with a credit score of 580 or higher, FHA loans are popular among first-time home buyers who have little savings or flawed credit.
It's easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that is not insured or guaranteed by the federal government. An FHA loan allows for lower credit scores and, in some cases, lower monthly mortgage insurance payments.
Credit score. If your credit score is 500 or higher, you may qualify for an FHA loan. Minimum credit score on conventional mortgages is 620 but can vary by loan program and lender.
Minimum down payment. The minimum down payment on an FHA loan is 3.5% if your credit score is 580 or higher. The minimum down payment is 10% with a credit score of 500 to 579.
Loan limits. The maximum FHA loan size depends on where the home is. The limit is lower in the least expensive housing markets and higher in the most expensive housing markets.
Debt-to-income ratios. With both FHA and conventional mortgages, your total monthly debt payments can be up to 50% of your pretax income.
Mortgage insurance. FHA mortgage insurance cannot be canceled if you made a down payment of less than 10%, while private mortgage insurance on conventional loans can be canceled after you have accumulated sufficient home equity.
Foreclosure. You can't have a foreclosure or have given up your property’s deed in lieu of foreclosure within the past three years. There are exceptions for extenuating circumstances such as serious illness or the death of a wage earner.
You're entitled to apply for a VA mortgage if you're active duty or have separated from military service under an “other than dishonorable discharge,” the VA says.
How to get your certificate To tap your VA loan benefit, you will need a certificate of eligibility from the VA. Nelms says you can get a certificate in three ways:
The certificate is most often obtained through a lender, Nelms says, by accessing a web-based system called WebLGY.
How to complete your certificate To complete the certificate, and depending on your situation, you’ll need signed evidence of: