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Housing and Urban Development is the umbrella agency that houses the Federal Housing Authority and as such all home loans that are government guaranteed are both HUD and FHA loans. These types of mortgages are federally insured programs designed to provide affordable housing options to first-time homebuyers and low-to-moderate-income borrowers who may not be able to qualify for a conventional mortgage. There are various types of FHA or HUD loan programs available to potential homebuyers, including fixed rate, adjustable rate, graduated payment, and reverse mortgages. If a loan certified for FHA insurance later defaults, the holder of the loan may submit an insurance claim to the FHA for the losses resulting from the defaulted loan.

Qualifying for a HUD or FHA Loan

When it comes to income qualification criteria for an FHA loan, no specific income minimum or credit score is required, but borrowers should be able to provide a 3% down payment and demonstrate a steady employment and income history for the past two years. The biggest benefit of FHA loans is that their more flexible finance terms, less strict credit standards, and lower down payment requirements and closing costs allow borrowers unable to qualify for traditional mortgage loans to start buying instead of renting. The structure is similar to the Veterans Administration loans that waive all down payments for veterans and their families, although these loans require 3% down.

FHA Loan Benefits and Limitations

FHA loans allow a maximum loan to value (LTV) of 96.5% on a 1-2 unit property, the down payment may be comprised of all gift funds with non-occupying co-borrowers allowed
Loans can be used in conjunction with eligible government down payment assistance programs.
Non-traditional credit is allowed but property must be owner-occupied. Loans are capped at 80% of the regional median house price, allowing for price fluctuations from region to region.