Federal Housing Administration Loan: Are you in a financial constraint and you are in need of a loan? I have good news for you. Federal Housing Loan is here for you. With the Federal Housing Administration Loan (FHA Loan), you can get that house you so much want and desire.
It is important that you know what federal housing administration loan is if you must know its importance.
What is an Federal Housing Loan?
These are loans that can be used to buy homes, refinance existing home loans, or to improve a home. To show how unique and well organized the FHA loan is, there are many federal housing loan-approved lenders throughout the country.
FHA loans are insured by the Federal Housing Administration (FHA), which partners with private mortgage lenders to offer relaxed eligibility requirements. Not all FHA-approved lenders are the same.
Who Can Apply for Federal Housing Loan?
The FHA loan is opened to anyone whose mortgage needs conform to federal housing administration guidelines.
Also, be informed that federal housing loans are not issued by the FHA. Instead, the FHA works with approved lenders to underwrite mortgages. Lenders issue FHA mortgages loans in accordance with federal guidelines, and the FHA insures the loans to reduce the risk to lenders.
However, these loans are usually used by lower-income and moderate-income borrowers who may not have a lot of money for a down payment or who may not have the credit score necessary to qualify for a conventional loan.
Some Types of Federal Housing Loan
Below are some of the types of FHA Loans;
1. Traditional Mortgage
This is a standard mortgage that allows you to purchase a primary residence and pay your loan off over time. It can have a fixed or variable rate.
2. Home Equity Conversion Mortgage
This type of FHA loan is available to home owners aged 62 and over who want to take cash out of their home to help fund retirement or other expenses. It is a type of reverse mortgage. It allows you borrow money in a fixed monthly amount or open a line of credit to access cash as needed.
3. 203(k) Improvement Loan
This type of FHA home loan provides you with funding not just for buying a house, but also for making your home more efficient and lowering your utility bills.
4. Energy Efficient Mortgage Loan Program
This type provides you with extra funds to make your home greener and your utility bills lower.
5. Section 245(a) Loan
This type allows you to make smaller monthly payments to start. These payments go up as your income grows. In some cases, higher monthly payments are made on a set schedule to reduce the repayment term of your FHA Loan.
Importance of Federal Housing Loan
The following are some of the importance of FHA loan;
1. There Low Down Payment Requirements
In the FHA loan, you only need to put down 3.5% of the home’s purchase price to qualify for it.
2. It is Easier to have
You can get an FHA loan more easily than conventional loans, especially if you have a lower credit score than conventional lenders require.
3. Looser requirements for a down payment
The FHA allows 100% of the down payment to come from gifts or grants, but most lenders limit the amount of down payment funds that can come from gifts.
4. Interest rates are lower
The interest rate is lower because the FHA insures your mortgage.
5. Sellers can help more with closing costs
Many conventional lenders strictly limit the amount of money sellers can contribute to closing costs, while the FHA allows sellers to pay these costs up to 6% of the price of the home.
6. You can get a Home through it
Furthermore, with FHA loan you can buy a home for as little as 3.5% down payment, whereas most lenders want 10% to 20% down. This makes it much easier to get into homes in expensive markets where you may not be able to save enough to put down on a home.
FHA programs provide substantial economic stimulation to the United States via community and home development which flows down to local communities in the form of jobs, schools, and other sources of revenue.
Disadvantages of Federal Housing Loan
Below are some of the disadvantages of FHA loans;
FHA Loan a large extent is limited. In other words, some regions have relatively low limits on the maximum loan amount you can borrow through the FHA. It also demands that you must pay for FHA mortgage insurance both upfront and annually.
Also, if you put less than 10% down, you will have to pay for private mortgage insurance the whole time you carry the loan. With a conventional mortgage, you can drop PMI after your loan-to-value ratio hits 80%.
Federal Housing Loan Requirements
Below are some of the major requirements for FHA Loan:
You must make a minimum down payment of about 3.5% or more depending on your FICO credit score.
You must a minimum credit score of about 500 with 10% down payment or 580 with 3.5% down payment.
You must have a mortgage insurance of at least 1.75% upfront premium plus annual premiums that vary depending on your loan-to-value ratio (LTV). Annual premiums are paid on a monthly basis.
The home must be your primary residence; you must provide proof of employment, in other words, you must be employed and the maximum debt-to-income ratio is 43%.
What is the Highest Amount you can Request for?
The highest amount you can borrow depends on the area you reside. In other words, the amount that you are allowed to borrow will vary depending upon the area where you live and the cost of housing or whatever you may wish to use the loan for in that area.
How is Federal Housing Loan Funded?
The FHA is funded and operates from self-generated income resulting in no burden on taxpayers. The FHA holds proceeds from mortgage insurance in an account used to pay for the program.
In a Nutshell
Thus, from the above therefore, it is apparent that Federal Housing Administration (FHA) loan to a large extent is worth giving a try as long as getting a loan is concern.