FHA loans are offered through the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. Although the word loan is in the title, it is actually insurance for lenders that promises them that their loan will be paid back. Favorable lending terms like receiving a lower interest rate and paying a smaller down payment are available for families who have an FHA loan. If you are interested in applying for an FHA loan, here is what you need to know.
Lending companies, banks, and credit unions all offer FHA loans, and consumers will be able to find one from any institution that lend money for mortgages. A person must have excellent credit and have a low debt-to-income ratio in order to qualify. This means that you must take in a lot more money each month than you have to pay out. If your lender does not ask you if you are interested in applying for an FHA loan, ask about it yourself during application time. Keep in mind that, unlike some other state and federal mortgage programs, there are no income requirements for qualifying for an FHA loan.
Borrowers are only required to put down 3.5 percent when purchasing a home with an FHA loan. However, closing costs do tend to run a little more than average as compared with standard mortgages. Home buyers are required by the government to set up an escrow account for FHA insurance. The money in the account is the amount owed to the FHA for costs associated with the loan. Keep in mind that while the 3.5 percent down and the amount of money in the escrow account is not negligible, it is still usually less than the standard 20 percent down that lenders receive for stand ard mortgages.
Picking the Home
It can be a slightly different experience choosing a home that will be bought with the Federal Housing Administration. Home inspections must be made according to standards that have been set by the FHA. If the home does not pass the inspection, a buyer will not be able to get qualify for the loan. There are, however, special programs to assist buyers who wish to purchase a home that does not qualify through the inspection. The borrower can add in the amount that the repairs will run into the entire loan amount. This program makes it possible for buyers to purchase homes that are considered good investments as fixer uppers. There are also individually run programs for the purchase of a trailer or a multi-family home.