HUD Secretary Marcia Fudge
Source: Getty

Where to Apply for an FHA Loan and How to Qualify

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Jun. 3 2021, Published 1:08 p.m. ET

For many people, owning a home is a symbol of economic success and an investment that can grow in value over time. However, many types of home mortgage options can be overly taxing for millions of people due to lower income or higher debt ratios.

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The Federal Housing Administration, or FHA, has been helping people buy homes since 1934. The FHA is a part of HUD (the U.S. Department of Housing and Urban Development). FHA loans are mortgages that are both insured by the FHA and backed by an FHA-approved lender.

Types of FHA loans available

There are various types of FHA loans to assist borrowers with low-to-moderate income. 

  • Traditional Mortgage

  • Home Equity Conversion Mortgage

  • 203(k) Mortgage Program

  • Energy Efficient Mortgage Program

  • Section 245(a) Loan

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home loan fha
Source: Pixabay

For first-time homebuyers, FHA loans are often the most attractive (and most feasible) option. They require a lower percentage of the home purchase price as a down payment, which is often the biggest hurdle for potential homebuyers to overcome.

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How to qualify for an FHA loan

FHA loans are popular because of their lower barriers to qualification. They’re designed for borrowers who aren’t at the top income levels, so down payments and minimum credit scores are much lower than for other types of home loans. However, certain requirements are stricter and tougher to meet.

The general qualifications for an FHA loan are:

  • A minimum credit score of 500 (versus 620 for a conventional home loan)

  • A down payment of 3.5 percent with a 580+ credit score; 10 percent with a 500–579 credit score

  • The lender must be FHA-approved (check the HUD Lender List search page for approved FHA lenders)

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  • Steady employment or same employer for 2+ years
    • Usually must be your primary residence, not a rental or investment property
    • Certain loan amount limitations depending on location
    • Pay mortgage insurance and mortgage insurance premiums.
  • fha mortgage loans
    Source: FHA Mortgage Loans Facebook
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    FHA loans other than traditional mortgages

    The HUD website is a useful resource for information about all kinds of FHA loans. 

    Home Equity Conversion Mortgage

    The HECM is a reverse mortgage that enables homeowners aged 62 and up to convert some of their home equity into cash. 

    To qualify, you must either own your property or carry a small mortgage balance and be living in the home full-time.

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    FHA 203(k) Mortgage

    For those who are buying a home that needs significant improvements, a 203(k) Mortgage enables you to purchase the home and finance renovations in one mortgage.

    Energy Efficient Mortgage Program

    The FHA Energy Efficient Mortgage Program enables homeowners to finance energy improvements to the home, which also helps them to save money on energy bills.

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    Section 245(a) Loan

    Section 245(a) of the FHA provides for loans that expect homeowners’ income to increase over time. A Growing Equity Mortgage (GEM) lowers the initial costs of buying a home, with the plan that mortgage payments will increase gradually. As payments increase, extra payments reduce the principal, which shortens the loan term. 

    Graduated Payment Mortgage (GPM)

    A Graduated Payment Mortgage (GPM) is similar to the GEM, with monthly mortgage payments increasing incrementally over time.

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