The Federal Housing Administration (FHA) insures mortgage loans to provide home ownership opportunities for average Americans. I say this because FHA requires only a minimal down payment, equal to 3% of the sales price, and has much looser credit guidelines than most conventional programs. Even better is that fact that the 3% down payment can come from government grants, like Missouri's first time homebuyer program MHDC, and from seller funded down payment assistance organizations. That's a mouthful, but the bottom line is that with FHA, you can get a 30-year fixed mortgage with a great rate and not have to put any money down.
To determine eligibility for the loan, FHA considers your credit scores much less than your payment history over the last 12 months. This means, even if you have moderate or low scores, as long as you have done well over the past year, you have a good chance of qualifying. The alternatives if you have low credit scores usually involve loan programs with high interest rates and nasty features like prepayment penalties. For this reason, borrowers with poor credit should really consider taking the time to establish a year of solid credit performance. I often help clients with low scores develop a working strategy to achieve this. See my article on Common Credit Problems and How to Fix Them for more information.
Even borrowers with great scores can benefit from FHA loans because of the low down payment requirements and good rates. A good loan officer should give you the breakdown on all available options.
For many first time homebuyers, FHA is a great choice because of its low rates and general flexibility. Especially when used in conjunction with MHDC's first time homebuyer grant, it often cannot be beat.
