When navigating the world of homebuying, you've likely heard the term "FHA loan" before. But what exactly is an FHA loan, and what does it mean for your home purchase?
Here's an intro to this style of loan, what they offer and the criteria for qualification.
What is an FHA Loan?
First of all, what does "FHA" stand for? The Federal Housing Administration, or "FHA," has been offering up loans to American consumers for decades—more than eight, in fact. As a part of the U.S. Department of Housing and Urban Development (HUD), the FHA works with state agencies such as South Dakota Housing Development Authority (SDHDA) to offer up loans that are affordable and scalable—typically for households that often have fewer lending options. When you see "FHA" attached to a type of loan being offered by a bank, credit union or other financial institution or agency, it means that the FHA insures the loan to make it easier for your lender to offer you a good deal on a mortgage.
Why Apply for an FHA Loan?
Because FHA loans are intended to offer additional options for potential homebuyers with moderate or lower incomes, they come with some perks, typically. The FHA aims to insure loans that offer minimal downpayments, minimal closing costs and simpler credit qualification. This means that you could stand to pay as little as 3.5 percent on your downpayment—this is a big perk for homebuyers who can't afford to spend as much as 10-20 percent, which some other types of loans may require.
There are also styles of FHA loans that are specifically geared toward seniors on fixed incomes, as well as buyers looking to make their purchased homes more energy-efficient. These are all styles of loans that you can work with SDHDA to secure for your next home purchase in South Dakota.
Do I Qualify for an FHA Loan?
South Dakota Housing Development Authority (SDHDA) offers FHA-insured loans through its First-Time and Repeat Homebuyer programs—in order to qualify for a loan such as this, you need to meet certain criteria. To meet SDHDA's standards for qualifying for a First-Time Homebuyer Loan you must have:
- Not have purchased a home in the last three years
- A household income within SDHDA's limits
- An intended home purchase within SDHDA's price limits
For those homebuyers who aren't purchasing a first home, the Repeat Homebuyer Program requires certain income and purchase price limits, as well as a credit score of at least 620 to qualify.