FHA Home Loan - Why So Popular?

The Federal Housing Administration (FHA), an agency of the federal government, insures private loans that are issued for new and existing housing, and loans that are approved for home repairs. Created by congress in 1934, the FHA became part of the Department of Housing and Urban Development's Office of Housing (HUD) in 1965. Today the mission of the FHA includes helping borrowers get amounts they qualify for, and assisting lenders by reducing their risk in issuing loans. FHA loans do not come directly from the FHA. The FHA only insures the loans.

Long-overlooked, the FHA mortgage has become popular again for its low rates and the real security it provides borrowers and is responsible for over 75% of the loans financed within the past couple of years.

Benefits

If you're looking for low down payment loans, FHA is the way to go. It only requires a 3.5% down payment whereas standard loans will ask for at least 5% - 10% down and the interest rates on those loans are much higher.

Credit guidelines are easier on the buyers. FHA will allow credit scores down to 580. Now, with the credit crunch you'll find that banks have their own guideline "overlays". For example, even though FHA may be Ok with a 580 score borrower after looking at their credit history, the bank may require a minimum 620 fico score. You see, the bank is the one lending the money. FHA only insures the loan. So it's basically up to the bank to make the final determination regarding risk.

Here's the deal when it comes to credit. If you apply for a conventional loan (not government insured) the lender will be increasing your interest rate as your credit scores go down. So if you're not on the 700s, be prepared to face higher rates, especially if not putting much money down. But on FHA home loans, interest rates will remain the same as long as your fico score is higher than 620. Pretty good!

FHA also allows the seller to credit up to 6% of the purchase price towards the buyer's closing costs. This is double of what conventional financing allows. Last but not least, FHA doesn't always require cash reserves. This will be determined based on the buyer's overall financial situation.

If you'd like more to learn more about FHA or check if you qualify for one, don't hesitate to call me.

On Your Team,

Maria

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