The United States Department of Housing and Urban Development, or “HUD” is focused on the development of urban areas in America. They have created many programs that are categorized under loans included under this is the Federal Housing Administration, or “FHA”. In this post, I will discuss the most common FHA loan questions I receive.
Are FHA Loans a Government Loan?
Many home buyers have turned to FHA home loans in our current economy. FHA loans have been thought of as a “first time home buyers” loan. You can use this loan program to purchase your second house too. The Federal Housing Administration was created in 1934 as an effort to bolster homes sales during the Depression. By financially guaranteeing loans the FHA lifts much of the risk of non-payment and foreclosure from private lenders. It is important to remember that the FHA is not a lender; they just guarantee your loan.
Advantages to FHA Loans:
Bankruptcy not an automatic disqualification: In an effort to afford more people the opportunity to use this type of loan bankruptcy is not a disqualifier. The bankruptcy must be two years old and you must have good credit since then.
Less stringent credit requirements: Instead of looking solely at your credit report the Federal Housing Administration looks at what they call the “total scorecard”. The total scorecard allows the FHA to better assess and manage the risk of a given loan.
Lower interest rates: Conventional home loans focus on credit scores. The lower the score the higher the interest rate to compensate for the increased risk of the loan. Because FHA loans are guaranteed, there is substantially less risk for the lender and therefore interest rates are lower.
Down payment is required: Most conventional home loans require 20% down – $20,000 for a $100,000 home. Whereas, an FHA home loan requires 3.5% down – $3,500 for a $100,000 home.
FHA Loan Limits: Loan limits vary by the home locations. Check on the loan limits in your area