FHA-insured loans or FHA loans as they are called have helped hundreds to thousands of home buyers across the United States make their dreams come true. Therefore, knowing the basics of FHA loans is essential to persons looking to purchase their dream home, especially for first-time home buyers.
The first point of call is to know what FHA really means and what FHA loans are. The FHA stands for the Federal Housing Administration. The government agency was established in 1934 to alleviate the housing deficits in the United States. FHA loans, on the other hand, mean federal mortgage assistance provided to intending and existing homeowners through private lending institutions. FHA only covers loans and does not make guarantees for loans.
Having noted the meaning of FHA and FHA loans, below are some of the features that have made this mortgage loan type the best in recent times.
- The first major benefit of FHA loans is the provision of financial assistance to practically all categories of home buyers. Basically, the idea behind FHA mortgage loans is to ensure that everyone intending to purchase a home can live the dream. It is for this reason that the loan is available to everyone, even those with a bad credit history.
Persons that have gone through bankruptcy can also benefit from an FHA loan. However, candidates that have experienced bankruptcy and foreclosures can only get an FHA loan after two years of the event. It is also required that they maintain a healthy credit at the time of applying for the mortgage loan, with a proof of this.
- Another benefit of FHA loans is that home buyers get competitive rates, especially when compared with conventional mortgage loans. Unlike conventional mortgages, FHA loans do not have strict requirements for eligibility. Therefore, virtually anyone can apply for an FHA loan, as there are no income limits. However, it is worth noting that the low and moderate salary earners, as well as first time home buyers, have been discovered to prefer using FHA loans.
- The relative simplicity in regards to qualifications for an FHA loan is also a plus for this type of loan. Unlike most other types of mortgage loans in the market, intending borrowers do not have to cope with stringent requirements to be qualified for an FHA loan. Having an FHA loan also gives you the option of refinancing your current mortgage.
Qualifying for an FHA mortgage loan is even easier as intending borrowers do not need to be first time home buyers. However, it is important to note that you can go for only one FHA mortgage loan at a time.
What is the Role of an FHA-Approved Lender?
To apply for an FHA loan and subsequently get one, you need to approach an FHA-approved lender. The approved lender assesses your status and application, and subsequently, estimates the imminent risks associated with providing you with the loan. The lenders do their bit by verifying your debts and credit records.
After verifying your records and confirming the authenticity, the lender subsequently comes out with a plan that is suitable for your requirements. As mentioned earlier, FHA loans suit the average borrower particularly as it allows for a very low down payment. Due to the promise from the FHA to repay the loan in the event of a default by the borrower, lenders are usually ready to approve borrowers. However, such loans come with a fee charged by the Federal Housing Administration (FHA) to make up for the guarantee provided.
The additional fees for FHA loans are to be paid at the time of applying for the loan. Loan processing and application are the popular fees to be paid by intending borrowers.
There is also a borrowing limit according to the guidelines of FHA, which usually should not be more than 29 percent of the borrower’s total income. In addition to this limit, it is also stated that house-related expenses and other such expenditures like child support, alimony, credit card debt, student loans and car payments should not be more than 41 percent of your total income.
In addition to the limits mentioned above, there are also some other limits specified by the FHA over the amount to be borrowed. Consult your FHA lender to get more information on this type of loan.