The Federal Housing Administration, commonly known as the FHA, has been helping Americans purchase a house in a more cost-efficient way since their debut establishment in 1934. While the FHA itself does not lend the money for the loans, they do insure the FHA mortgage lenders, making it possible for the lenders to offer more affordable mortgage rates.
Another reason that FHA mortgage rates are more affordable than regular mortgage rates is because they are regulated by the government and they have a partnership with the United States Department of Housing and Urban Development (HUD), therefore, FHA mortgages are more apt for helping first time homebuyers and people with a low credit score.
FHA home loans are typically directed towards individuals who want to:
- Purchase their first home
- Make repairs to their home
- Remodel their home
- Create a more energy-efficient home
Although these are the main four reasons to receive FHA home loans, there are plenty of other reasons to consider FHA loans for help. One of the main reasons individuals are turning to the FHA for help is that the FHA is affiliated with the United States Department of Housing and Urban Development, also known as HUD, an organization that has been around since 1965.
The main priority of HUD is to increase the development and economical status of urban housing areas. HUD has created several loan options that reach out to help all sorts of individuals. Individuals such as police officers and teachers can manage to get a 50% discount on a home located in an urban area through HUD and the FHA. There are also many other loan options to choose, such as refinancing your home or preventing mortgage foreclosure.
Do You Qualify for an FHA Loan?
As mentioned before, FHA home loans are great for first-time homebuyers, people with low credit, or people who do not have enough money for a large down payment. However, there are a few requirements that homebuyers must abide by in order to receive an FHA loan. Here is a list of those requirements, which follow the basic FHA loan qualification guidelines:
- Must not have any bankruptcy issues within the past two years; two consecutive years of good credit following any bankruptcy concerns
- Must not have any mortgage foreclosure issues within the past three years; three consecutive years of good credit following any mortgage foreclosures
- Two years of stable employment, within the same company or employer preferably
- Last two years of income should be equally the same or increasing
- Last two years of your credit report must have less than two “thirty day late” statements
- Any new mortgage payment should be roughly 30% of your gross income
Things to Keep in Mind about FHA Loans
FHA loans have the availability to help many individuals, ranging from homebuyers wanting to buy their first home to homeowners wanting to prevent mortgage foreclosure, but there are a few things to keep in mind when it comes to FHA loans.
An individual must be able to make at least a 3% down payment in order to receive an FHA loan, which is a considerably lower figure than most other loans would make you pay on a down payment for a house. However, for any down payment that is less than 20% of the house value, there is a 0.5% mortgage insurance rate per year on the full loan amount. There is also an upfront mortgage insurance cost of 1.5% of the loan, and a 2.25% closing cost fee.
With this in mind, an FHA home loan may not be the right solution for everyone, but it has already helped a vast amount of Americans. Whether you are a first time homebuyer, have a potentially low credit score, or want to prevent mortgage foreclosure, you could be the next American to get the help you need today with an FHA home loan.