An FHA loan is a mortgage that has been insured by the Federal Housing Administration. The point of
an FHA loan is to give lower income consumers the ability to purchase a house.
In 2008, the housing system collapsed as a result of reckless borrowing and lending. Banks would
issue loans at promotional rates, with tiny down payments, to people with low income. After the
promotional rates ended, and as rates across the board increased, these borrowers all defaulted on
their loans in, essentially, one fell swoop.
The result was mass homelessness, unemployment, and trillions of dollars lost in the stock market.
It could have been a lot worse, too. Thankfully, however, in order to cushion the blow from housing
crises like that one, the government has been insuring subprime loans since 1934.
The financial requirements for FHA borrowers are looser than conventional mortgages. For example,
one’s credit score can be as low as 640. For conventional mortgages, it’s 620. Similarly, the down
payment for an FHA mortgage can be as low as 3.5%.
In order to insure the loan, the borrower is charged an upfront fee of 1.75% of the sale price. Then,
on the on-going loan payments, an additional monthly premium must be paid. If the down payment on the
FHA loan was more than 10%, these premiums can be cancelled after 11 years.
UFirst Credit Union
specializes in all kinds of mortgages. We can even help you pre-qualify for an FHA loan!