What is an FHA Loan

FHA loans are provided through the United States and are administered through lenders qualified by the Federal government. FHA is short for Federal Housing Administration; the government branch that governs these loans. There are several types of FHA mortgages making it a wise idea to speak with a financial or housing counselor when considering a home sale as this will ensure you understand the basics of an FHA loan. FHA loans have helped home owners obtain mortgages with a lower down payments, lower closing costs and easier terms for credit qualifying. The FHA has helped homeowners obtain loans with better terms since 1934.

An FHA loan provides mortgage insurance which indicates that the loan is backed by the Housing of Urban Development (HUD). There are certain requirements that must be met in order to qualify for an FHA loan. Eligibility requirements include credit qualifications, ensuring that you can pay the yearly premium as well as down payment and closing costs, and the property you plan on purchasing. There are certain structures that qualify for FHA eligibility and these range between one and four unit structures. Additionally, each state sets its own eligibility terms so it’s important to check with your local HUD office to determine the FHA eligibility rules that apply for your situation.

Those who wish to qualify for an FHA loan should have at least two years worth of documented work history that shows steady income (or income that continues to increase). There shouldn’t be more than two late payments on your credit reports. Prior bankruptcies must be older than two years with good credit following and foreclosures should be older than three years. Your mortgage payment shouldn’t be more than 30% of your total gross income.

There are many advantages to obtaining an FHA loan as these loans have lower interest rate and require smaller down payments, you can save a great deal of money. There are also several things you can do with an FHA loan. In addition to purchasing or buying a new home, you can also use an FHA loan to repair or fix an existing home. You can also use these loans to make an existing home more energy efficient. One of the greatest advantages to choosing an FHA loan is that past credit issues, such as a bankruptcy, are not automatic disqualifiers. Those with bankruptcies more than two-years-old, yet have maintained good credit may qualify for an FHA loan.

As credit requirements are lowered with FHA loans, the FHA will use a total scorecard to assess an applicant rather than just look at a potential homeowners credit rank. Because FHA loans are insured and mortgage lenders have the assurance of knowing the Federal government backs the loan, interest rates are significantly lowered enabling potential homeowners to obtain a home at significantly lowered interest rates. As an FHA loan still requires a down payment, which in turn means that the loan principle will be lowered as well. Together, this can result in a total loan with lowered interest rates that makes mortgage payments more affordable and can result in a quicker time frame for loan repayment.

When considering an FHA loan it’s important to realize that loan rates change on a daily basis so it’s best to monitor the housing market and look for the best opportunity to obtain an FHA loan when the market is good and the rates are low. For many, an FHA loan can make home ownership possible and bridge the gap between renting and home ownership.

There are several types of FHA loans and one of these is the FHA 203K loan. This particular loan is used by those who wish to revitalize or rehabilitate single family homes. These loans can help those with lower incomes obtain a home in a good neighborhood at a more affordable price. The FHA 203K loan is a wonderful opportunity for lower income residents to obtain their own home in good, safe communities at an affordable price.

FHA loans provide many benefits and advantages. Speak to a housing counselor or an FHA qualified lender regarding the options available for you.