FHA loan is an insured mortgage by the Federal Housing Administration (FHA). They are popular especially among first home buyers because they allow a 3.5% down payment for a 580+ credit score. However, the borrower must pay a mortgage insurance premium, which protects the creditor if the borrower fails to pay.
The borrower can qualify for an FHA loan with an advance of 3.5% for a credit score of 580 or higher. The credit value of the borrower can be between 500 - 579 if 10% down payment is made. It is important to remember, that the lower the credit score, the higher the interest borrower will receive.
The FHA program was created in response to the rash of foreclosures and failures that occurred in the 1930s; provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable for people with less than stellar credit or low down payments. Basically, government governments guarantee loans to FHA-approved lenders to reduce their risk of loss if borrowers fail to pay their mortgages.
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