What is an FHA loan?
The Federal Housing Agency (FHA) is a part of the U.S. Department of Housing and Urban Development (HUD), and an FHA loan is simply a mortgage loan, insured by the FHA, and issued by an FHA approved lender.
FHA loans are known for their:
Lower interest rates compared to conventional loans
Fixed rates, so payments do NOT increase
Lower down payments
Lower mortgage insurance
Easier qualification standards
Ease of refinancing
Where do these FHA benefits come from?
With an FHA insured home loan, the FHA insures the lender against loss of principal in case the borrower fails to meet the terms of the mortgage. That benefits you the borrower, with an FHA approved appraisal and a lower interest rate than the lender would offer without the FHA insurance. The qualifying standards and terms of FHA loans are different as well… and in ways that benefit the consumer.
Is an FHA loan right for you?
In order to purchase a home with an FHA loan, there are a few, basic loan requirements that the borrower must meet. Generally speaking, the FHA wants borrowers to be able to document their income. The FHA also wants to see verifiable rental history, or if the borrower already owns a home, good mortgage payment history.
Basically, the FHA wants to ensure that borrowers can pay their obligations. The FHA will often take a letter of explanation in extenuating circumstances, if there is a problem with the borrower’s payment history. The FHA also attempts to make sure that a borrower looking to purchase a home with an FHA loan will not have a debt-to-income ratio above 31% if their loan is approved.
With an FHA loan you are allowed to finance up to 96.5% of the purchase price on a home. This requires a 3.5% down payment (less than a traditional conventional loan). The down payment may be from the borrowers own savings, or it may be gifted from a family member.
Additionally, it is possible to roll closing costs into your loan thru a program called seller concessions. To learn more about an FHA loan with limited fees and closing costs contact a loan expert at CREFCO today at 1-866-854-4242.
In the event that a borrower has had to file a bankruptcy, the FHA requires that the borrower be two years out of the bankruptcy in a Chapter 7 or one year out in a Chapter 13.
For alternative options if you are in bankruptcy, check our Bankruptcy Options page.
Apply Today and get into the home of your dreams with an FHA mortgage.
Even more benefits of the FHA loan program
FHA loans offer some of the lowest interest rates on the market. For example, on a $100,000 mortgage you can expect the monthly payment to be over $200 less with an FHA loan compared to a sub-prime loan.
Most FHA loans also benefit from a fixed interest rate, compared to many sub-prime mortgages which have adjustable rates. These adjustable rate mortgages (ARMs) hurt many homeowners as the interest rate can unexpectedly jump sending monthly payments higher without warning.
In addition, the majority of sub-prime mortgages carry a heavy prepayment penalty which makes it too costly for many homeowners to refinance when rates are attractive. FHA loans have no prepayment penalties, so you can refinance your home loan at any time without worry.
The FHA home loan program also has benefits over conventional loans. The biggest value to the borrower is that someone with less than perfect credit can still qualify to an FHA loan with respectable terms. Conventional loans are much more difficult to qualify for, and often require a greater down payment compared to the the 3.5% required for an FHA home loan.
Let us help you compare the costs and benefits of an FHA loan over other options.
Our application is fast, easy and free, and gives you access to an expert who can will help you decide.