What is FHA?
FHA is a federal backed loan, meaning it is an assisted mortgage loan insured by the Federal Housing Administration. These loans are flexible and the guidelines are less rigorous than conventional loans. FHA loans are available to first time home buyers and those whom wish to refinance. You can even buy a second, third, or fourth home, but you may only have one FHA Loan. Find out more.
Who Can Get an FHA Loan?
Almost anybody can get an FHA loan. There are no income limits – like you may find with first time home buyer programs. However, there are limits on how much you can borrow. In general, you’re limited to relatively small mortgage loans relative to home prices in your area. To find the limits in your region, visit HUD’s Website.
To qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. In general, you have to be better than 29/41. In addition, you have to have decent credit. You don’t need wonderful credit to get an FHA loan; it just needs to be decent.
Why are FHA Loans so Great?
FHA loans are not for everybody. Nevertheless, they are a great help to some borrowers. FHA loans allow people to buy a home with a down payment as small as 3%. Other loans might not allow such a low down payment.
FHA loans offer a few other bells and whistles:
* Easier to use gifts for down payment and closing costs
* No prepayment penalty (a big plus for subprime borrowers)
* An FHA loan may be assumable
* Possible leniency during financial hard times
How do FHA Loans Work?
The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.5%. They also pay a small ongoing fee with each monthly payment.
If a borrower defaults on an FHA loan, the FHA uses collected insurance premiums to pay off the mortgage.
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