The FHA Loan: Fact Vs Fiction

By January 2, 2013
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“FHA-insured Loans are Impossible to get if you have Bad Credit” FICTION.

Although the FHA lending standards have gotten more strict since 2008, it’s still possible to get a loan after short sale or buy a house after foreclosure using an FHA loan.

“FHA-insured Loans are for Poor People.” FACT.

126994725Of course, this all depends on how you define “poor,” but the mission statement of the FHA is to serve borrowers who have “poor credit and little money for down payments.”

“You can’t get foreclosed on if you get an FHA-insured Loan.” FICTION.

Although the interest rate for FHA loans is lower (usually around 3.5%) and the terms tend to be more fair towards the borrower…it is just as easy to default and go into foreclosure on an FHA loan as it is on a regular loan. In fact, more FHA loans went into foreclosure last year than any other year in American history.

“FHA-insured loans are getting More Expensive.” FACT.

The FHA just increased their fees from 1.75% of the total house price to 2.2% of the total house price. This is in addition to your interest rate. This still makes FHA loans the cheapest in the country but it is a powerful warning sign to home buyers….buy now, because the FHA rates won’t be this low forever.

“You can’t buy a foreclosed house with an FHA-insured Loan.” FICTION.

This used to be true, but as of January, 2010, the FHA removed hurdles for home buyers when buying foreclosed homes.

“You need a credit score of at least 620 to get an FHA-insured loan.” FICTION.

The FHA is designed to assist borrowers who have been through a legitimate economic hardship and can prove it. They usually give out a large amount of loans to borrowers with a FICO score of less than 620, and who can only afford small down payments.

“In order to get an FHA-insured loan you need a Loan Officer.” FACT.

Most loan officers are not authorized to work with FHA loans. You will need to find an agency that is accredited, and has knowledge of the underwriting department at the FHA. This is because the crucial factor in getting an FHA loan is the letter of economic hardship. This justifies you getting the loan in the first place. If the letter is not written in a certain way, by a professional, you will not be accepted.

“FHA-insured loans don’t penalize people with bad credit.” FICTION.

Although it’s true that if you have bad credit, your interest rate won’t go up, If your FICO score is below 580, you will have to pay a down payment of 10% as opposed to the regular 3.5%.

“You can’t buy a nice house with an FHA-insured loan. FICTION.

The FHA limit is a total of $729,750. This includes all fees and closing costs, including your local city’s mortgage taxes.

“You can’t just buy a house with an FHA-insured loan and sell it for a profit to someone getting a regular loan.” FICTION.

The FHA officially waived the no-flipping rule in February, 2011. Once you buy the house, it’s officially yours and you can do whatever you want with it: Sell it for a profit, or keep it for yourself. The only thing you can’t do is sell it to a family member. This actually helps buyers because now they can swoop in and quickly buy foreclosed homes before the hawks get to them.