The
FHA has been in the business of helping Americans
buy and keep their homes since 1934. Once an entity of its own,
the FHA is now a part of the Federal Department of Housing and Urban
Development (HUD). The FHA does not lend money. So what exactly
does the FHA do to help Americans become homeowners?
The FHA insures
mortgage loans. To a mortgage lender this is very good news. It
means that should a borrower default on a loan the FHA will pay
the lender its losses. Lending money becomes less of a risk for
the lender. This still leaves the question, "how does this
help the average American become a homeowner?"
The FHA mortgage
insurance allows a lender to offer a mortgage loan
in confidence to buyers who would otherwise present to great a risk,
and therefore not qualify for a loan. However, the FHA does more
than make more loans available to more people. The FHA makes loans
more affordable. In exchange for offering mortgage insurance to
the lender, the FHA demands that the lender lessen certain requirements
for obtaining a loan.
Basic FHA loan
qualifications are simply met. A borrower must; be a lawful US resident,
have a social security number, and be old enough to sign on a mortgage
loan per your states laws. The borrower must also intend to live
in the home and have a two year employment history.
One of the
most valuable demands the FHA places on a lender is the lack of
a minimum credit score. Rather than a credit score the FHA looks
at credit history. The FHA understands that life has its bumps and
bruises and unforeseeable things can affect a credit score. The
FHA wants to know that you have an overall history of paying your
bills on time.
Another valuable
aspect of an FHA loan to a borrower is the down payment. The down
payment on an FHA insured loan can be as low as 3.5% of the overall
purchase price of the home. Additionally, the down payment money
can come from almost any source. The money can be a gift from a
family member, or even come from a charitable organization. Saving
for a down payment prevents many people from becoming homeowners.
The FHA loan virtually eliminates this problem.
Lastly, an
FHA insured loan generally has among the lowest interest rates available.
Lower interest rates make monthly payments more affordable. |
