Get to know the facts about FHA loans
There are many different types of loan programs. It is extremely important to find the best program, the one that meets all your needs in the best way possible. One of the home loan programs you can choose from is an FHA mortgage. Although everybody has heard about these loans, not everyone knows what an FHA loan is exactly. Before making a decision about which loan product is best for you, you should educate yourself on all your options so you can make the right decision for you and your family.
An FHA loan is a mortgage loan that is insured by the US Federal Housing Administration (FHA).
The Federal Housing Administration (FHA) was created in the year 1934 by the National Housing Act. The primary goal of this act was to increase home construction, reduce unemployment, and operate various loan insurance programs. The agency itself doesn’t make any loans, nor build any houses. Through the Federal Housing Administration, an applicant for a loan was investigated. After that, if results of this financial investigation were satisfactory, the federal government guaranteed the loan in the event the borrower failed to fulfill their loan obligations.
Nowadays, FHA loans have gained in popularity, especially with first time home buyers because the loan requirements are less strict than conventional loans. FHA loans can be used to purchase a primary residence or refinance an existing home loan as well. Throughout its history, FHA insured loans have allowed lower income Americans the opportunity to borrow money to purchase a home which they wouldn’t have been able to. An FHA loan makes this possible because the loan feature requires a lower down payment to qualify for an approved mortgage in comparison to regular conventional home loans. The FHA loan minimum down payment is 3.5% compared to a minimum of 10% for a convention loan. And, FHA loans also have more relaxed credit guidelines than traditional mortgage products.
There is a small catch, as these mortgages must include mortgage insurance premiums. FHA loans require two types of insurance payments. First, a portion of the insurance premium one is paid upfront in full, or it can be financed by rolling it into the mortgage. Secondly, there is also an ongoing monthly insurance payment portion for the full term of the mortgage.
Also, you should pay close attention to some things, for example, if you have a lot of unpaid debts, you can just forget about getting the approval for an FHA loan. The only way you could avoid this rule is if you prove that your debts are the result of a force that is bigger than you, and out of your reach. This could be the case in situations like a death in the family, loss of employment, divorce and a few others. Also, if you want to get pre-qualified, you will need to be at least three years removed from any foreclosures and bankruptcy filing.