A Quick Primer : What the Heck an FHA Loan Is
Because the FHA loan is becoming
more and more popular in today’s changed market, I’m presenting a quick little
article, courtesy of Brandon
over at MortgageLoanPlace.
So, first off, the FHA (Federal
Housing Administration) does not loan a home buyer money; it insures the loan. This means
that if the borrower is unable to make payments, the FHA will cover the loss to
the lender. This FHA insurance allows banks and other mortgage providers to
consider lending to those who would otherwise be considered too great a risk.
In return for this insurance, lenders must meet certain requirements set forth
by the FHA. The FHA does not rely on tax payers for support; instead the cost
of the insurance is rolled into the borrower’s monthly mortgage payments.
Many people assume that FHA loans are for first time homebuyers only.
This, however, is not the case. FHA loans are for anyone and can be used to
purchase or refinance a home. To be eligible for an FHA loan you must have a
social security number, have lawful US residency and be old enough to sign on a
mortgage per the laws of your state.
One of the main advantages to
any FHA insured loan is the credit score. There is no credit score requirement.
It is the borrower’s credit history that matters, not a particular number.
Therefore if your credit is less than perfect but you have a reasonable
explanation, the FHA wants to put you in a home. FHA loans also have lower
income requirements.
The most popular FHA loan
program is the 203(k).
This FHA loan program requires the lender to offer a fixed rate loan to the
potential homeowner. The loan can be for a 1-4 family home provided the owner
use the home as a primary residence. The 203(k)
loan requires only a 3.5% down payment from the borrower and that money can be
gifted from one of several sources, including the borrower’s relatives, a
government agency or a non-profit organization. This makes home buying more
affordable to many Americans.
So What About Property Condition Requirements?
FHA loans used to place a heavy
importance on repairing every minor imperfection before financing a home.
Today, however, the FHA allows as-is appraisals when the property deficiencies
are not likely to affect the safety of the homeowner. Generally, the FHA
starts to show concern with issues such as poor exit routes from bedrooms, weak
roofs, foundation problems, and homes with lead paint issues. If problems
on this scale exist, the lender will require these items to be resolved before
moving forward with an FHA loan.
Realtor, Marathon Man, "Man of a Thousand Voices".
Great Post and right on time. HUD stated this week that FHA loans now make up 35% of the market. Thanks for the great info!
Thanks for the feedback, Apella!