What is a FHA Loan?

What is a FHA Loan?

The Federal Housing Administration (FHA) is a government agency. It is a branch of the Department of Housing and Urban Development (HUD). FHA is not a lending institution; it simply guarantees the loans. This insurance reduces the risk to lenders, thereby making it safer for them to take on a borrower that has less-than-perfect credit. If you have a low credit score or are a first time home buyer, FHA could be the way to go. The FHA insurance makes lenders willing to offer you lower, more affordable rates.

Currently, FHA financing requires a 3.5% down payment minimum to obtain a home loan. But you may have heard in the news that the legislation is being considered that would reduce the down payment requirement or even eliminate it altogether. Legislation is also being considered that would increase the limitations on loan amounts in areas of the country where real estate is priced extremely high.

Here are some advantages to retaining an FHA mortgage:

• Low down payment – as little as 3.5% of the purchase price.

• You can finance your closing costs with your mortgage loan.

• Repair costs can be added onto your loan amount with 203 (K) financing.

• FHA will insure the purchse of manufactured homes and condominiums.

• If the home could use some modernization in order to make it more energy efficient, you can finance the cost of these repairs as well.

A FHA loan can allow you to include the costs of your home improvements in your loan. With HUD's 203 (k) program you can purchase or refinance a home that needs improvements and include all repair and improvement costs in the loan. FHA loans can even help you to make your home more energy-efficient. The FHA recognizes that with a more energy-efficient home, the homeowner can afford to pay a higher mortgage; therefore, the FHA can also include these types of repairs in the original loan also. FHA loans are funded by financial institutions such as mortgage centers or banks. The FHA is here to help you become a homeowner. Both the FHA and HUD offer low-interest loans to qualified borrowers so that they may purchase homes. The FHA and HUD also offer mortgage insurance for those who are part of the VA Home Loan Guarantee Program.

As always, a loan from FHA insures that lenders will be provided with a payment, even if the home buyer defaults.

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