Friday, March 20, 2015

FHA Loans, What and Why Are They?


Federal Housing Administration (FHA) home loans are a great option for many homebuyers and homeowners looking to purchase or refinance. FHA home loans are specifically useful to borrowers who cannot make a big down payment, who want low monthly payments, whose credit is not great and qualifying for a conventional loan is difficult for them.

Congress created the FHA in 1934 and it became part of the Department of Housing and Urban Development (HUD) in 1965. The FHA is not a lender. The FHA is the largest insurer of mortgages in the world. Lenders are insured by the FHA against losses as a result of a homeowner defaulting on their mortgage loan. It insures single and multifamily homes including manufactured homes and hospitals. The FHA is the only government agency that does not cost the taxpayers anything operating entirely from the proceeds from its mortgage insurance which is initially part of the mortgage payment.

This program allows a first time home buyer, who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan. With the recent subprime lending collapse, the FHA home loans have become cool again, as mortgage lenders and brokers are flocking to the latest FHA loan programs. FHA has been around for decades, and there are many innovative programs to help different segments of the population to realize the dream of home ownership. A common misconception is that FHA home loans are for first time homebuyers. The fact is you can only have one FHA loan at a time whether it's your second home or fifth. The mortgage limits for FHA home loans are set on an area-by-area or county-by-county basis.

This type of insurance is an attractive benefit for FHA approved and authorized lenders. If the homeowner defaults, the lender gets its money from the FHA. The lender or broker works with prospects to qualify their loan application to FHA guidelines for approval for this insurance for the loan.

FHA loan guidelines also provide attractive benefits to home buyers as qualification is usually less stringent than conventional loans. Plus, all FHA home loans are FULLY assumable, adding one more layer of protection for you and your family. Having an assumable loan at a good interest rate would be part of a good plan for selling your house in the future especially if the interest rates have gone up.
If refinancing a home, the current loan DOES NOT have to be an FHA loan. Refinancing an existing FHA home loan is actually called a streamline refinance. FHA loans are for all homeowners that are buying, or refinancing their home. FHA mortgage loans assist existing homeowners to convert their ARM to a reduced rate refinance loan that ensures a set fixed payment every month until the mortgage is paid off. With FHA refinancing, homeowners can count on market-low mortgage rates to pull cash out up to 85%, and in some cases 95% loan to value. FHA loans are for all homeowners that are buying, or refinancing their home.

Each type of FHA loan is unique and must be applied for individually. Attention is given to one's ability to make payments and handle life's expenses. Less attention is given to FICO scores when applying for an FHA loan than with a conventional loan. Qualifying for an FHA home loan is done by using a set of debt-to-income ratios that are a bit more in your favor than those used for conventional home loans.

The following two FHA loan requirements are important for qualifying: Housing expenses should not exceed 29% of your gross income; total indebtedness should not exceed 41% of your income. FHA home loans require a smaller down payment as well. Down payments for FHA home loans are low, generally 5% or even as low as 3.5%. The finance package in a nutshell is: FHA insurance + lender financing = FHA loan. Ask your lender for assistance in learning which FHA mortgage is right for you.

FHA home loans are available in rural and urban areas. FHA home loans are not loans granted by the government, but FHA home loans are mortgage loans that are guaranteed by the Federal Government. FHA home loans are generally offered at reasonable interest rates, and guarantee the mortgage company that the loan will be paid. So whether you are refinancing, buying your first home or your fifth, try out FHA.

Got more questions? Contact an FHA Loan Specialist [http://www.tmfinancialsolutions.com/?page=services] today. [http://www.tmfinancialsolutions.com/?page=services]
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