Posted 10/10/2017

An FHA loan is a mortgage insured by the Federal Housing Administration.  FHA loans allow for smaller down payments.  This can make it possible for lower- and middle-income borrowers to buy a house when they don’t qualify for a conventional loan — which has stricter requirements, such as higher credit scores and bigger down payments. Additionally, you can be gifted the entire down payment of the loan from a family member, employer or charitable organization.

It’s important to understand that the lower the credit score, the higher the interest rate borrowers will receive. Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5 percent, the borrower needs a credit score of 620 or higher.

If you’ve recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify for FHA).

Mortgage Insurance: Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages.

FHA loans require two types of insurance: Upfront Premium and Annual Premium.

The upfront premium is 1.75% of the loan and can be financed into the mortgage. The annual premium is paid monthly and for the life of the loan for those whose down payment is less than 10 percent. The fee varies based on the size of the down payment and the repayment period. In general, the greater the risk to the lender, the higher the mortgage insurance might be.

What if the home needs improvement?

The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The advantage of this type of loan, called a 203(k), is that the loan amount is not based on the current appraised value of the home, but on the projected value after the repairs are completed.

FHA-insured home improvement loans from HUD are intended for owners and not investors, so you must inhabit the property within 30 days of closing if the property is habitable or within 30 days of completion of all repairs or upgrades if the house was not inhabitable.

Because the FHA is not a lender, but rather an insurer, borrowers need to obtain their loan through an FHA-approved lender like Mortgages Unlimited. Not all FHA-approved lenders offer the same interest rate and costs — even on the same FHA loan.

Mortgages Unlimited is a local mortgage company serving not only the Twin Cities but also, South Dakota and Wisconsin. Minnesota Housing programs are not available in South Dakota or Wisconsin. We work on the behalf of our clients ensuring they are getting the best possible loan while providing outstanding customer service.

Give one of our Mortgage Consultants a call @ 763-416-2600 if you are looking to purchase a home or refinance your existing home loan. Or you start a secure online application at


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