Many looking to buy a new home, especially first-time home buyers, are often under the impression that a 20% down payment is required. The truth is, there are many loan options, like the Federal Housing Administration (FHA) approved loan that allows buyers to put less than 5% down in some cases. However, there are rules and restrictions on how this works.

What determines your eligibility for an FHA loan is partly dependent on your credit score, debt-to-income ratio, and income/employment. According to FHA.com, here is the fundamental FHA eligibility requirements:

• Credit score is 580 or better
• Down payment of 3.5%
• Debt-to-Income Ratio is less than 43%
• Mortgage insurance is required

Seems simple enough, but there are additional considerations that can hurt your eligibility for an FHA-approved loan:

• No Credit History
• Bankruptcy
• Late Payments
• Foreclosure
• Collections, Judgements & Federal Debt

FHA loans are a great option for first-time homebuyers who want to get into homeownership but don’t have the funds for a large down payment. Even though bankruptcy and foreclosure can hurt your chances of getting an FHA-backed mortgage, you still may be able to get approved. The whole objective of the FHA loan is to give more people with lower credit or limited funding the opportunity to own a home.

The key things to understand about FHA, according to Investopedia.com, is the following:

• FHA loans are federally backed mortgages that are ideal for lower-income borrowers with lower than average credit scores.
• FHA loans require a lower down payment minimums and credit scores than conventional home loans.
• Lenders and banks must be approved in order to issue FHA loans.
• Rules and restrictions apply with FHA loans in addition to loan limits.

There are many benefits to an FHA loan that include:

• Pay your mortgage at any time without pre-payment penalties
• 30, 25, 20 and 15-year terms are all available with fixed rates for FHA home loans
• 5-year adjustable-rate mortgage (ARM) available

Additionally, not all mortgage lenders can offer FHA. In order to be eligible to deliver FHA loans, mortgage companies must apply with the state of Michigan. Once approved, the lender is eligible to administer FHA-approved loans by adhering to Michigan’s FHA rules and requirements.

Navigating the FHA loan process can be extremely daunting, but that’s the job of your mortgage provider. The best mortgage strategy for your financial situation depends on many variables, but a mortgage expert can help you navigate this complexity to determine if an FHA home loan is the right strategy for you.