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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.

Qualifying for a HUD or FHA Loan

When it comes to income qualification criteria for an FHA or HUD 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 or HUD loan Limitations and Drawbacks

There is a cap on the amount the FHA will loan per house, based on a percentage of the median regional home prices, so naturally that amount varies from state to state. Any home that exceeds 80% of the median home price is considered a jumbo loans and not eligible for FHA financing. Any loan that has to go through another layer of bureaucratic approval will also involve more paperwork and waiting than the average conventional loan. The HUD or FHA loan also charges a one percent origination fee and is added to the loan received.