Home ownership no longer epitomizes ‘the American dream’. Decades in, the goal of having a house of your own has become attainable. Most banks have a loan product intended specifically for clients looking at the real estate market. Private lenders also offer varied means for financing the purchase, construction or improvement of an existing residential property.
But perhaps the best option of all is those set up by the government.
The Federal Housing Administration is an agency that provides insurance on mortgage loans made by approved lenders all throughout the country and territories. With over 34 million properties insured, it is the largest insurer in the world.
The FHA was created in 1934 and is under the U.S. Department of Housing and Urban Development.
The FHA Loan Advantage
An FHA loan has a number of features that make it appealing to both the lender and the borrower. The agency provided insurance protects a lending company against losses incurred when a homeowner defaults on a mortgage loan.
Compared to traditional loans, it’s easier to qualify for an FHA loan. An applicant only needs to get a FICO score of 580 to be considered eligible for maximum financing. Even those with a credit rating between 500 and 579 can still get approved, albeit with higher interest.
Other requirements are listed below:
- Steady employment history for the past two years
- Valid Social Security number
- Proof of United States residency
- Of legal age to sign a mortgage in your state
- Use the purchased house as the primary residence
- Approval from an FHA-approved appraiser.
Best FHA Rates
Traditional loans usually require a borrower to pay 30 percent of the purchase price at the closing. By contrast, an FHA loan only asks for 3.5 percent, provided that the borrower’s credit score is at least 580. Should it be lower, it will be bumped out to 10 percent.
Such low rates make an FHA loan a much more appealing option. But it doesn’t stop there. The government has created programs that can help to further reduce closing costs. Most states have a down-payment assistance program designed for low and very low-income households. This is run by local housing authorities. Additionally, there are grants that can be won and used for this purpose.
Best FHA Loan Options
Several FHA loan types exist. While each one may have a different purpose, all are intended to make owning a residential property that much easier.
This loan type is ideal for those who want to buy the house but have not been able to put away money for it. The 203 (b) is the most popular FHA loan because it keeps down-payments and closing costs at a minimum. Individuals can finance up to 97 percent of their home loan using this option.
The FHA Adjustable Rate Mortgage (ARM) introduced by the HUD. Its purpose is to help low and moderate-income families to transition from being longtime renters to becoming bonafide homeowners.
This loan type enables borrowers to benefit by avoiding foreclosure. Many who have adjustable rate mortgages find it difficult to keep up with their monthly payments due to increase in interest rates. Through FHASecure Refinancing, homeowners who have missed up to three mortgage payments in a year won’t have to experience their homes being taken back by the bank.
This is designed for homeowners aged 62 years old and up. The borrower can convert the equity of the home into income or a line of credit.
Energy Efficient Loans
Homeowners who desire to make property improvements that are designed to reduce the cost of utilities can benefit from this loan. It saves the borrower money as the cost of the property as well as the planned improvements can be combined in a single loan.
Graduated Payment Mortgages
Home buyers who expect an increase in their present income within the next 5 to 10 years can take advantage of this particular loan. Mortgage payments are structured to grow along with their earning potential.
Growing Equity Mortgage
This aims to help out those with limited income but expect their monthly earnings to grow over time. In Growing Equity Mortgage, payments start small and gradually increase over time. As mortgage payments grow, the additional amount is applied toward the principal on the loan, reducing the mortgage term.
This loan type is specifically geared towards borrowers who would like to own a home inside a condominium building.
Best Info for FHA Loans
BestFHALender.com is focused on bringing the most useful and relevant information about FHA loans in understandable terms.
Throughout this website, we have compiled resources about mortgage rates, underwriting guidelines, lenders, and other pieces of information that we think are of relevance to you as a borrower and future homeowner (see FAQs below).
We want you to succeed in buying your own dream home through an FHA loan. That’s why we strive to come up with the most relevant information to help you make an informed choice.
FAQs for Borrowers
What is an FHA loan? A mortgage backed by the Federal Housing Administration or FHA and designed to help families and individuals with moderate means and not-so-great credit scores finance the purchase of their own home. The FHA has in store an array of loans ideal for first-time homebuyers, people who have previously owned homes, and even senior citizens through reverse mortgages. The FHA acts as the insurer of the loans and authorizes a number of lenders to make these loans (FHA-approved lenders).
How do I qualify for an FHA loan? FHA loans are known for their flexible and less stringent requirements. As a general rule, a borrower must maintain a FICO score of 580 to take advantage of lower down payment. Borrowers with scores between 579 and 500 can still avail of FHA loans with higher down payments. While lenders still have to assess the creditworthiness of an individual, the important thing is the government’s backing of the loan, the FHA in this case, gives them the confidence to make loans to high-risk borrowers at competitive rates. Lenders would also look into a borrower’s loan-to-value ratio or LTV whereby the value of the loan is compared with the value of the home. If a borrower has low LTV ratio, then he/she will qualify for lower mortgage rates.
How much is the minimum down payment? A hallmark feature of FHA loans is the low down payment that can go as low as three and a half percent of the home’s purchase price. It has been widely recognized that down payments constitute a hurdle for most homebuyers when purchasing a home. The FHA down payment deal gets even sweeter as down payments can be funded by the borrowers’ families, friends and other entities included in the FHA’s list of approved sources. First-time homebuyers can also apply for down payment assistance.
Where can I apply for an FHA loan? You can take out a loan with any FHA-approved lender. Remember, lenders will impose varying requirements, interest rates and fees related to the processing and approval of the loans. Don’t be afraid to shop around and find out the loan package that works for you. In addition, don’t forget to ask about the maximum loan limit applicable to your area as FHA loan limits vary from county to county in every state.
Can I refinance an FHA loan? Yes, FHA loans can be used to refinance an existing/current mortgage. The Streamline Refinance program aims to lower the monthly payments toward the existing mortgage, e.g. when the interest rate goes up and the borrower finds it difficult to make higher monthly loan payments. In order for homeowners to qualify for the program, they, among other things, (i) are required to have already made six payments, at a minimum, on their current mortgage; (ii) must not miss out three monthly mortgage payments; and (iii) must show that there is a legitimate purpose for the refinancing, known as net tangible benefit.
Is “financial hardship relief” available? Yes. In the event a borrower runs into financial difficulty that would make it hard for him/her to make the required monthly payments, FHA loan servicers can provide relief to that borrower. Relief could be by way of a loan modification whereby the interest rate is lowered, the payback period is extended, or a portion of the loan balance is deferred at no interest; or a temporary forbearance.
Finding the Best FHA Lender
BestFHALender.com is a one-stop shop offering useful information about FHA loans and enabling customers to shop for multiple lenders. This site is operated by Ventana Loan Services LLC, which provides a range of residential mortgage loan products. This full service mortgage company is focused on providing an opportunity to well-meaning borrowers to achieve home ownership at competitive costs.
It cannot be emphasized enough that FHA loan programs are known for their flexibility as homeowners can choose an FHA loan program that would fit their lifestyle, needs, and wishes.
Talking to a lender near you would be a step further and broaden your options as you would come to know more about FHA loans.
Get started with your own FHA loan today!