FHA Home Loans Emerge As A Great
Alternative For Individuals With Low-Credit Score & Low Down Payment
April 15, 2008
Benefits of Government FHA Insured Loans
By Andre Plessis
FHA stands for Federal Housing Administration, a
by-product of the National Housing Act of 1934 and now a sub-group
within the
U.S. Department of Housing and Urban Development (HUD).
The FHA is not a lender nor does it build homes.
FHA loan is a federal assistance mortgage loan in the
United States insured by the Federal Housing Administration. A loan
which has been insured by the federal government guaranteeing its
payment in case of default by the borrower.
Loans extended by FHA-approved lenders typically are
designed to assist borrowers unable for various reasons to get the
approval necessary for conventional home loans.
The FHA exists to insure lenders against loss in the
event that a homeowner defaults on a mortgage.
Mortgages backed by FHA are often called “FHA loans” .
A more appropriate name would be “FHA-insured” loans because
that better describes the FHA’s function.
With the FHA’s guarantee, mortgage lenders are more
enticed to make loans on which they would otherwise pass and the
explicit backing from the government holds mortgage rates low for
borrowers.
FHA loans are often used by borrowers who have less
than 20 percent down payment on a home purchase and, therefore, tend to
require mortgage insurance payments.
For FHA loans above 80%, mortgage insurance rates are
0.50% annually (paid monthly) with an up-front payment of 1.5% against
the loan size and due at closing.
For all homeowners, though, when the loan
balance reaches 78 percent of the home’s value, the annual MI is no
longer required.
Benefits of an
FHA-Insured Loans
If one or more of the following
situations apply, then an FHA-insured loan may be suit you better:
FHA-insured mortgages offer many
benefits and protections that you won't find in conventional loans
including:
Lower cost: FHA-insured loans have competitive interest
rates because the Federal government insures the loans for lenders.
Smaller down payment:
FHA-insured loans have a low 3.5% down payment and the money can come
from a family member, employer or charitable organization as a gift.
Other loan programs may not allow gift down payment.
Easier qualification:
Because FHA insures your mortgage, lenders may be more willing to give
you loan terms that make it easier for you to qualify.
Less than perfect credit: You don't have to have
perfect credit to get an FHA-insured mortgage. In fact, even if you have
had credit problems, such as a bankruptcy, it's easier for you to
qualify for an FHA-insured loan than a conventional loan. You will need
at least 620 FICO to be eligible for FHA loan.
More protection to keep your
home: The FHA has been around since 1934 and will continue to
be here to protect you. Should you encounter hard times after buying
your home, the FHA has many options to help you keep your home and avoid
foreclosure.
FHA Loan Qualifications
FHA loans have been helping people become homeowners since 1934. The
Federal Housing Administration (FHA), which is part of HUD, insures the
loan, so your lender can offer you a better deal.
