Before applying for a mortgage backed by the Federal Housing Administration, it is important to know what the credit requirements for FHA loan will be. If you know your credit score, you will be able to determine your loan options. Those with great credit scores will get the best rate and the lowest down payment requirement. Those who have a score of 500 to 579 will still be able to get an FHA loan, though it will be with a borrowing limit of 90 percent.
Another attractive quality of an FHA loan is the low down payment requirement. Borrowers will only be required to pay 3.5 percent of the total purchase price. Many banks and private lenders can require 10 percent or more, especially for those with less-than-perfect credit or not a lot of credit history.
If closing costs are also a concern, an FHA loan has different options for borrowers. First is for borrowers to agree to pay the closing costs; the other is that they can choose a slightly higher interest rate on their loan to have the lender cover the closing costs. A good faith estimate can help individual borrowers determine which option will save them the most money.
There are pros and cons to getting an FHA-backed loan, so it is important to go over all of the information and determine your qualifications before choosing this type of loan for your next home purchase or mortgage refinance.