In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.
FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.
The main difference between an FHA Loan and a Conventional Home Loan is that an FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3 years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union, or Equifax. If your score is below the minimum standard, you may not qualify.
Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:
Employment
Savings
Credit
Personal
Refinancing or Own Rental Property