By Charles Park on January 19, 2010
The Federal Housing Administration (FHA) which is a part of U.S. Department of Housing and Urban Development (HUD) was established to provide mortgage insurance on loans made by FHA-approved lenders in the United States and its territories. FHA loans have allowed American citizens to purchase homes that are otherwise unaffordable. It covers mortgages from single and multifamily homes to manufactured homes and hospitals.
Why should you consider FHA loans?
There are many benefits offered by FHA-backed loans which are absent in others such as:
- Low Interest Rates: Since the federal government is insuring your loan, lenders provide competitive interest rates.
- Easy to be Qualified: Lenders are more lenient with qualifications. With the federal government insuring your loan, the risk of default that lenders face is either removed or minimized. Your housing and other various debt can be up to 41% of your income opposed to 33-36% for conventional loans.
- Low Down Payment: The down payment for FHA loans can be as low as 3.5%. The down payment can also be a gift from a family member.
- Low Credit No Problem: The federal government is not a lender but an insurer. By insuring your loan, the lender will assume less risk and thereby accept borrowers who would otherwise not qualify. You can qualify three years after a foreclosure as opposed to four years for a conventional loan.
Why should you not consider FHA loans?
Keep in mind that FHA loans have low limits. The money you can borrow is comparatively less than the amount from a loan from Freddie Mac or Fannie Mae. It can also depend on where you live. Also, you generally will have to pay mortgage insurance. |