An FHA mortgage is a home loan insured by the Federal Housing Administration. The FHA does not provide money directly to borrowers; rather they insure the mortgage against a default. This makes Federal Housing Administration borrowers particularly attractive to lenders. The lenders know that if the borrower fails to pay, they can come after the Administration for their money.
Borrowers who pay a down payment of less than 20% of the principal of their home are expected to buy private mortgage insurance (PMI).
FHA History
The Federal Housing Administration was conceived in 1934. In 1965, it joined with the Department of Housing and Urban Development (HUD). During its lifetime, the Federal Housing Administration has insured more than 30 million mortgages. About 800,000 people who currently hold mortgages have a loan through the Federal Housing Administration. The Federal Housing Administration operates from the proceeds of PMI purchased by home buyers whose down payment was less than 20% of the principal of the home.
Who Qualifies for this Loan?
When most people think of a Federal Housing Administration loan, they think of the first time home buyer. Certainly, the Administration enables first time home owners, but an Administration loan may be an option for you even if you have bought a home before.
Requirements for qualifying for a Federal Housing Administration Loan include
*A good credit record
*Money for a down payment (you can pay as little as 3.5% down if your credit score is 580 or better)
*Housing costs that equal no more than 29% of your gross annual income (if you are a first time home buyer, this rule ensures that you do not purchase too much house and get into trouble with debt)
Types of Federal Housing Loans
By far, the most popular type of loan is the fixed rate loan (203B). This loan allows for a low down payment (3.5%), and also allows moneys used for closing to come from gifts.
Other popular loans include the Rehab Loan (203K) which helps borrowers who purchase property that requires repairs before anyone can live in it. The Adjustable Rate (251) is also a popular loan plan.
If you believe you may qualify for this time of loan, find a Federal Housing Administration lender and asked to be pre-approved for a home loan.
