FHA loans are mortgage loans backed by the Federal Housing Administration of the U.S. government. Mortgage lenders must meet the FHA's guidelines to get approved. According to the FHA website, FHA loans offer low down payments and low closing costs, as well as eased credit qualifications. FHA loans can be used for purchasing a home, fixing up a home and refinancing a home. They even have special programs for first-time homebuyers.
History
The FHA is part of the U.S. Department of Housing and Urban Development (HUD). According to HUD's website, the FHA is the "largest government insurer of mortgages in the world." Lenders approved by the FHA provide affordable housing to those who might not otherwise be able to buy a home. The lenders face less risk because the FHA will pay back the lender if the homeowner defaults on a loan.
Eased Credit Qualifications
FHA loans require a low down payment of 3.5 percent, low closing costs and a lower credit standard. A FICO score of 620 or better qualifies borrowers for loans backed by the FHA. A FICO score is a snapshot of a person's credit worthiness. FICO scores are determined by payment history, the amount of money owed, the length of credit history, new credit accounts and inquiries and types of credit. In general, a credit score above 700 is considered good, but scores can go as high as 850.
Benefits
FHA loans are good for people who otherwise wouldn't qualify for a mortgage loan. By becoming homeowners, people of all backgrounds can obtain a sense of pride in home ownership and live the American Dream. The purchase of more homes should help the economy stabilize and grow. FHA loans are perfect for people with low-to-moderate incomes and less-than-perfect credit.
First-Time Homebuyers
The process of buying a home can be daunting, especially for first-time homebuyers. According to the FHA website, it offers help and advice to first-time homebuyers. First-time homebuyers should get pre-approved for their FHA loan so they know what price range they can afford. Pre-approval also gives the seller more confidence in their offer.
Considerations
FHA loans can be used to buy many types of housing including single-family homes, condominiums and townhouses. The housing unit must meet FHA guidelines and appraise for as much as the sale price. The FHA does have guidelines for how much the loans can be. This amount varies depending on where you live. Approved FHA lenders can provide you with more information.
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