This is What’s Great About FHA Home Loans!
An Introduction to FHA Loans
A very helpful financial tool in making your dream home become a reality is the FHA loan, which is the Federal Housing Administration loan, issued in the US by an approved lender. The FHA was established back in 1934 and was specifically developed to aid the borrowers from lower-income brackets to get mortgages for which they would otherwise not qualify for. The FHA then joined the family of the Department of Housing and Urban Developments Office of Housing in 1965. Before this vehicle was developed, it was expected of homeowners to have a whopping 50% downpayment at hand for short-term balloon mortgages. Not practical, indeed.
What Makes Them Different?
FHA loans differ from the traditional mortgages as they are backed by the government, thereby protecting lenders against borrowers who may default. This is crucial in making more competitive interest rates a reality, on riskier loans of higher amounts. However, an FHA loan does still work by the same mechanics as any other home loan in that you are essentially borrowing an amount of funds from a lender, and have to subsequently pay it back over an agreed period of time. The distinction lies in the fact that FHA loan charges borrowers upfront and monthly insurance premiums for the entire duration of the loan. The perks are of course the low downpayment and lower credit card requirements, which makes them more easily obtainable. Not to mention that FHA interest rates happen to be some of the lowest in the mortgage industry!
The Finer Details
Surprisingly, the downpayment on an FHA home loan may be as low as 3.5% of the property purchase price. The catch here is only that the borrower should have a minimum credit score of 580, which is reasonable by most measures. It is also possible for closing costs to be bundled up into the loan. What is not allowed is the use of credit cards or unsecured loans for paying of the downpayment or for the closing costs; however, gift funds may be used for 100% of the closing costs as well as downpayment! This means that if your downpayment is gifted to you by an acceptable donor, you basically have zero downpayment – neat!
While it’s great to know that the guidelines that FHA loans have to follow are rather loose, individual lenders and institutions take it upon themselves to compile a lender overlay, which is a set of underwritten guidelines uniquely written for that particular institution or lender. Of course, this is understandable and it isn’t necessarily a down point. This just means a whole lot more research on your part when you are selecting which institution or lender to settle down with for your FHA loan.
The FHA does not lend the funds to the borrower, and neither do they set interest rates. The FHA insures the loans and thereby makes acquiring mortgages easier and more affordable. The maximum amount that qualifies for an FHA home loan for single-unit properties is actually approximately $679,650 (since some Hawaain counties climb up to $721, 050). There are still some that have loan limits at $294,515. So basically, the figure fluctuates a lot from county to county, and you will have to really look into where you’re specifically looking at to determine what sort of figure you are looking at.
More Good News
There are no minimum or maximum income limits imposed on the FHA loans, which makes this vehicle available for the wealthy as well as the low-income borrowers. Of course, as per the lender’s overlay, some institutions or lenders may have income limits underwritten in their guidelines. Also, you don’t even need to be a first-time buyer to benefit from FHA loans, as you have just as much of a chance obtaining one as a repeat buyer. Of course, it is more popular among first-time buyers particularly for its low downpayment feature, whereas repeat buyers would typically use profits from the property sale as down-payments for the next purchase.
There is a lot to be thankful for when it comes to the humble FHA loan, and if you weren’t very much aware of this incredible mortgage tool, you can now fully appreciate it for what it’s really worth! This is a tool that has made many happy new homeowners, and without it, there would be far fewer homes being purchased. Take advantage of this excellent tool in your next home purchase –whether it is your first or your fifth!
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