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Using an FHA mortgage to buy your first home means three basic, important things. The FHA loan program features more forgiving credit score requirements, a low minimum down payment requirement, and the ability to add extra loan funds to add energy-efficient features to the home.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

Are You Buying Your First Home?

October 8, 2022

Are You Buying Your First Home?
Using an FHA mortgage to buy your first home means three basic, important things. The FHA loan program features more forgiving credit score requirements, a low minimum down payment requirement, and the ability to add extra loan funds to add energy-efficient features to the home through a program called the FHA Energy Efficient Mortgage.

What do you need to know about FHA loans to help you compare your options? The first thing is that FHA loans are NOT restricted to those who are first-time home buyers, and FHA loans are not need-based. That is information you will find in any lending blog or official site. What is NOT so well known?

FHA mortgages are government-backed loans, which means if there is a natural disaster or you get into financial trouble and need assistance with your mortgage, there are specific government-directed options that you may be able to use when recovering from the problem. 
FHA loans require your loan officer to take certain steps with you to modify the mortgage or otherwise try to mitigate foreclosure.

No one takes out a mortgage planning to get into financial trouble later on, but it’s good to know you have options should you need them. When comparing loans, be sure to ask a conventional lender about any equivalent options and compare them.

FHA loans have more forgiving credit score requirements than some of their conventional counterparts. FHA loan standards and lender standards will both apply; on paper FHA loans allow those with FICO scores at 580 or better to get the lowest down payment.
 
Conventional loans may start at FICO scores in the mid-600s for the best rates and terms. That information is standard. But what’s not so standard information? Both types of mortgage loans can include down payment assistance from local participating agencies.

A conventional loan down payment is typically 5%, with some Fannie and Freddie options coming in lower. But if your goal is to save more money out of pocket at the start of the loan, the FHA 3.5% down payment minimum could be fairly offset by such assistance. Compare the numbers between a 5% down payment and 3.5%.

To some, the difference isn’t that great. To others the savings could be quite helpful. And that’s just one detail to remember about FHA loans when comparing your options. And you should definitely compare them, keeping your own financial needs and goals in mind.

Do you need a loan where you can walk away from a sale if the home appraises lower than the sale price? The FHA loan program allows you to do so WITHOUT forfeiting your earnest money.

Do you need a home loan you can pay off early with no financial penalty? FHA loans are specifically designed for this. And do you want a mortgage that potentially offers a lower fixed interest rate than some conventional loans? Thanks to the backing of the government, that is possible with an FHA mortgage. Remember that the lender’s decisions about the rates offered to you depend at least in part on your credit scores and credit history.

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