If you’re in the market for a new construction home, whether as a first-time or repeat buyer, chances are you’ll need to finance. Last year, 80% of homebuyers got a mortgage when purchasing a home. One of the biggest factors lenders will consider when offering loans is an applicant’s credit score. While a higher score could help you lower your interest rate and save money over time, there are versatile options if your score is not as high. Take FHA loans, for example. These are a popular route for many home shoppers, especially first-time buyers. So, don’t worry if you’ve never heard of FHA loans, FHA loan requirements in 2024, or what credit is needed for FHA loans. We’re here to break it all down in this blog, starting with the basics.

What are FHA Loans?

A housing FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans help prospective homeowners obtain home financing, including those with less-than-perfect credit scores. Now, this does not mean FHA loans are “bad” options for applicants. Simply put, if you don’t have an 800+ credit score, fear not. Unlike conventional loans, which typically require higher credit scores and larger down payments, housing FHA loans are more accessible to the typical home buyer. This has helped make FHA loans a popular option among a wide range of Americans, including those who may have struggled with credit issues in the past.

Now, a potential challenge with housing FHA loans compared to conventional loans is the additional insurance premiums. A major distinction between the two is that housing FHA loans require both an upfront mortgage insurance premium (MIP) and monthly MIP payments, regardless of the down payment amount. However, FHA loans for bad credit offer a viable path to homeownership for those who may not meet the stricter criteria of conventional loans, making these added payments worth it for most in the long run.

FHA Loan Requirements in 2024

So, we know that FHA loans are an option for many first-time or repeat homebuyers, but how do applicants qualify? To start, let’s set a bar for the typical credit score range. With a score of 620 or higher, you’ll most likely qualify for a conventional loan, however, FHA loans are still a great option. If your credit score ranges from 500-619, you may be better off applying for a housing FHA loan. 

Now, down payment amounts tend to vary. Let’s say you have a score of 580 or above. You may be eligible for a housing FHA loan with a down payment of just 3.5% or more. This is a great benefit for younger and first-time home buyers. Under 580, you may need to have a 10% or more down payment saved to qualify. In either case, your mortgage would cover the rest of the home costs, leaving you with the required monthly payments, typically paid over a 30-year period.

We also wouldn’t be doing our jobs if we didn’t cover the added MIP payments. For most who secure an FHA loan—no matter the credit score—the MIP payments are calculated based on several factors, including the length of your housing FHA loan and down payment. Expect to pay an additional monthly amount of approximately 0.15% – 0.75% of the total loan amount. This helps insure lenders against potential defaults.

Finally, there are a few additional requirements needed to secure a housing FHA loan. Borrowers must have their homes appraised by an FHA representative. Second, the home must be the borrower’s primary residence. FHA loans will not apply to rental or vacation properties. You must also prove occupancy of the property within a 60-day period of loan approval. 

Benefits of FHA Loans for Homebuyers

FHA loans are a popular option for many American homebuyers. So, what are the benefits applicants enjoy?

Low Down Payments

One of the most challenging parts of purchasing a new home is the required down payments. We’ve all been there. With FHA loans, however, the down payment may not be as scary as you think. With the potential to be approved with a down payment of just 3.5%, your ability to find homes in your price range could drastically improve with a housing FHA loan.

Flexible Qualification

Compared to conventional loan options, which may come with strict requirements, housing FHA loans make homeownership more attainable for a broader range of applicants. Whether your credit score is 800 or 500, an FHA loan can help you secure the home of your dreams.

Federal Backing

Housing FHA loans are insured by the U.S. government, which means lenders assume less risk. This is vital for borrowers because it helps lower the credit score requirements needed to qualify.

Lower Mortgage Insurance Rates

Compared to conventional loans, FHA loans can help applicants—even those with bad credit scores—afford a home. This is because mortgage insurance rates from companies like Geico, State Farm, and NHC Mortgage may be lower when attached to an FHA loan.

NHC: The Affordable Home Builder

In the same way housing FHA loans help borrowers finance homes, we help prospective homeowners find quality homes that actually fit their budget. Our newly constructed properties give you the best price per square foot on the market, with available listings in Texas, Alabama, Florida, and North Carolina. With flexible options for financing and home deposits, we make it as easy as 1, 2, 3. Be sure to check our available listings page to find a new home with your name on it.

FAQs

What are  FHA home  loans? 
Housing FHA loans are mortgages insured by the Federal Housing Administration. They are designed to help a wide range of home buyers secure affordable loans for their home.

What are the minimum credit scores for  FHA loans  for bad credit ?
For most applicants, FHA loans for bad credit will require a minimum credit score of 500. However, those with a score of 580 or higher may qualify for lower interest rates.

Can I get an  FHA loan  as a first-time home buyer?
Yes! First-time and repeat home buyers are all eligible for FHA home loans. You’ll need to be able to make a down payment of 3.5-10% on your home.