Do you feel homeownership is not attainable due to a less-than-stellar credit score or not having enough money saved to afford a sizable down payment? 

A Federal Housing Administration (FHA) loan could provide a viable path to achieving this dream with a lower down payment and more flexible credit standard than a conventional loan. 

The Local Home Loan Experts at UnitedOne Credit Union explain how FHA loans work in the latest episode of their podcast, At Home on the Lakeshore.



FHA loans have been around since 1934. The U.S. Department of Housing and Urban Development insures the loan, making it possible for lenders to offer a route to homeownership for those with issues in their financial history. 

“FHA is a program that helps out people who may not otherwise be able to get approved for a home loan,” said UnitedOne Mortgage Specialist Kari Johnsrud, NMLS # 441414. “It’s a good, go-to program if maybe you have a few credit issues or things that make your credit score less than perfect.” 

The benefits of a FHA loan make it an attractive option for many first-time homebuyers:

• Low down payment (standard minimum is 3.5%) 
• Lenient credit score requirements 
• Closing costs can be factored into refinanced loans 
• Can still qualify if you have bankruptcy or other issues in your financial history 

“A nice feature with FHA is if you do have a history with maybe a bankruptcy or short sale, they are willing to work with you and get you back into homeownership sooner than a standard conventional,” said UniteOne Mortgage Specialist Julie Peot, # 441412. “If you have bankruptcy history, they’ll look to help you again after two years versus conventional is four years.” 

Potential homebuyers need to meet certain requirements to qualify for an FHA loan:

• Must be for primary residence 
• Must occupy property within 60 days of closing 
• Home is appraised by FHA-approved appraiser 
• Inspection report meets minimum property standards 

“FHA is just a little bit stricter on the property,” said UnitedOne Mortgage Specialist Linda Serrano, NMLS # 441416.  “They’re protecting the financial doing the loan, but they’re really protecting you. 

“Anything that is going to be hazardous to you as a person that is going to be living in the home, they just want to make sure all of those things are taken care of.” 

Another thing to be aware of with an FHA loan is you’ll have to pay a mortgage insurance premium during the life of the loan. This is done to protect the lender against losses if you default on your loan. 

“They help you out by doing what’s called MIP up front,” Serrano said. “You are going to be paying up front some of that mortgage insurance premium, adding it onto your loan so your monthly mortgage insurance premium is less because you already paid some up front. That’s a good thing with FHA because your payment is probably going to be a little bit lower.” 

While having to pay a mortgage insurance premium over the life of the loan can seem like a deterrent, an FHA loan ultimately is still a great option for many to not only become homeowners, but build their financial strength as well in the long run. 

“Some people choose to take out an FHA loan to get a house sooner than they could otherwise,” Johnsrud said. “But then you can always look at refinancing later on when you have more equity in the house and you’ve built up your credit, and things are looking better, and you can get approved for a conventional loan. You can always switch over to another program.” 

Not sure what type of loan is right for you? Whether you’re looking to buy your first home or tap into the equity of your current house to do a renovation, UnitedOne’s team of Local Home Loan Experts are your trusted source in Manitowoc and Sheboygan for all your home loan needs. 

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