Photo of a mortgage formThe mortgage industry today is more complex than ever as mortgage regulations continue to pour in. Thus, the public clamor for deregulation and simplifying the system.

This article covers the FHA loans program basics, and how to qualify for one.

FHA Loans Explained

In FHA loans, the Federal Housing Administration is not the lender, per se. The FHA is the agency under the US Dept. of Housing & Urban Development tasked to promote home ownership and make it affordable to all American families.

Through FHA loans, private lenders can help make home ownership easy through a low 3.5% down payment even if the borrower has:

Low credit rating
Charge offs and outstanding collections
Prior foreclosure and bankruptcy
Employment gaps
High debt to income ratio
Role of the FHA

The FHA insures private lenders against foreclosure and borrower default. For an FHA loan to qualify for insurance, lenders must follow set FHA guidelines. Contrary to what many people think, the FHA is not the lender. It only provides insurance to private lenders.

Required Credit Score to Qualify for an FHA Loan

A prospective borrower needs to have a FICO credit score of at least 580 to avail of the 3.5% FHA loan down payment. If your score falls between 580 and 619, your debt to income ration must not be over 43%. A 620 score or higher will allow you to have a debt to income ration of up to 56.9%.

Other FHA Loan Requirements

The loan is available only for owner-occupied properties. You can use the loan proceeds to buy 1 to 4 unit-residential properties, townhomes, condominiums, and manufactured homes.

This loan allows a co-borrower who is a non-occupant. But, he or she must be related to the borrower.

FHA loans help make the dream of the average American household a reality. The requirements to qualify are easy and needs only a small down payment.