Understanding FHA Mortgage Loans
The Federal Housing Administration ( FHA ) is an instution that provides loans to individuals who want to buy their own homes. Over the years, it has increased the number of loans it provides, and this can be attributed to tightening of credit by mainstream financial institutions.
According to housing data provided by the institution, more than 20 per cent of new home purchases are made through FHA approved loans. FHA loan provides low income American families the opportunity to purchase their own homes.
Unlike conventional mortgages, these loans are insured by the Federal government and are provided to lenders who avail them to consumers.
These loans were first introduced during the Great Depression as a way of shielding lenders from losses that occurred as a result of high cases of foreclosures.
FHA Mortgage Insurance
One of the main advantages of FHA mortgage insurance is that it is available even to individuals with poor credit ratings. In addition, you can still apply for the loan even if you are bankrupt. However, applicants who have faced foreclosures or bankruptcy are only allowed to apply for the FHA mortgage loans 2 years after the event. In addition, you need to provide complete documentation that supports your income status. Such documentation includes tax returns and W2’s. This mortgage allows you to benefit from low down payments and no prepayment penalties.
FHA Down Payment
FHA mortgage insurance requires that you place a down payment of 3 per cent. This is very affordable when compared to the 20 or 30 per cent down payment required by financial institutions for conventional loans. Furthermore, FHA does not set interest rates on the loans. Of course, since the loans are insured by the government, they become attractive to buyers and this makes them have very competitive interest rates.
The criteria for applying for a FHA mortgage loan are a lot simpler when compared to other forms of loans. In addition, the loan can help you refinance your present mortgage. For you to qualify for the loans, you are not required to be a first-time homeowner. However, you only need to apply for a single FHA loan at a time.
To apply for the loans, you need to approach a FHA approved lender, who will go through your application to ensure everything required is provided. Since the loans are insured by the Federal government, most lenders do not hesitate to approve them. This is because the Federal government promises to pay back the amount loaned in the event that the borrower defaults.
Most people get confused when it comes to funding of these Federal mortgage loans. Although the mortgages are insured by the Federal government, they are funded by multiple sources. It is for this reason that you need to shop around searching for the best terms and conditions on the loans. Each FHA approved lender will have different requirements and conditions that need to be met before approving the loan. To obtain better rates, it is advisable to compare FHA mortgages from two or more lenders.