FHA Home Loans in Charlotte, NC

The Federal Housing Administration (FHA) — which is part of HUD — insures the loan, allowing lenders to offer financing to borrowers who might not qualify under conventional loan guidelines.

FHA allows a buyer to purchase a home with as little as 3.5% down for borrowers with a credit score of 580 or higher. Borrowers with scores between 500 and 579 may qualify with a 10% down payment. FHA tends to be more lenient on areas such as past credit history and co-borrowers.

Most loans use a method of analyzing credit called credit scoring in the underwriting process. Studies have demonstrated a direct relationship between low credit scores and higher mortgage delinquency rates. As a result, many lenders have established minimum credit scores at which they will accept loans. FHA has established minimum credit score thresholds (580 for 3.5% down; 500 for 10% down), but its underwriting approach is more holistic than many conventional programs. A lack of credit, old delinquencies, or incorrect information on the credit report can cause a low credit score, and FHA underwriting may allow a borrower to explain those circumstances.

The underwriter on an FHA loan will review the credit and payment history of a customer concentrating on the most recent 12 to 24 months. If the customer has had a good payment record over the past 12 to 24 months they can often get approved for a mortgage even when Conventional financing has turned them down. An experienced loan officer can help the customer clearly tell their story and will often make suggestions as to how to make the file more acceptable to FHA. Because of FHA's flexibility, some borrowers with past credit problems elect to use FHA even when they have a substantial down payment.

In an FHA purchase, the customer must contribute at least 3.5% of the sales price (with qualifying credit). Keep in mind that the total cost to close on an FHA purchase is commonly more than the minimum down payment alone — with closing costs, escrow reserves for taxes and insurance, and prepaid interest, the total out-of-pocket can be closer to 6–8% of the sales price. Seller contributions to closing costs are permitted within FHA guidelines.

The interest rate you select also affects the total cost. A lower rate reduces your payment but may involve upfront points. A slightly higher rate may allow a lender to offer credits toward closing costs. An experienced loan officer can help you weigh the options for your situation.

FHA allows the borrower to obtain the funds necessary to close from several sources, including personal savings, gifts, grants, loans from retirement accounts, and seller contributions within program limits.

Weighing your options? Compare FHA with conventional loans, read our first-time home buyer guide, see whether down payment assistance programs may apply, or start with mortgage pre-approval.

Eligibility subject to AUS findings and program guidelines.