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What is a Federal Housing Administration loan?

If you're considering obtaining a Federal Housing Administration loan, you should understand exactly what it is. The Federal Housing Administration lends to borrowers who obtain mortgage insurance. The insurance protects the lender from a loss if the borrower defaults, which is why FHA loans are issued with lower interest rates and more flexible qualifications.

The first thing that you might be interested in knowing is that you can get an FHA loan even if your credit isn't perfect. If your credit score is between 500 and 579, you'll need to put down a substantial down payment, usually around 10 percent. If you want to get a mortgage with a down payment as low as 3.5 percent of the loan, then you'll need to have a credit score of 580 or higher.

The only people who are usually unable to get FHA loans are those with credit scores of 500 or less. In certain circumstances, even those individuals may be able to get a loan, but they must meet the requirements for nontraditional or insufficient credit history.

To make a down payment, there are a few options. There are federal assistance programs for first-time home buyers, or you could use your own personal savings. Whatever you do, the goal is to get an interest rate that is as low as possible, since this reduces how much you have to pay back over time.

These loans can be a huge help to those who want to purchase a home; if you're considering it, your attorney can help walk you through the process of obtaining the right loan for your needs while also explaining and helping you with the contract.

Source: Bankrate, "7 crucial facts about FHA loans," Marcie Geffner, accessed Nov. 22, 2016

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