What is an FHA Home Loan?

10/17/2018

If you are a first-time homebuyer with limited amounts of funds to put towards your purchase, or if you have had credit problems in the past, you may find that an FHA Home loan gives you the freedom and flexibility you need to get into a house and start making it a home for your family.

If you are looking to buy your first home, then you owe it to yourself to check out the loans offered by the Federal Housing Administration (FHA).  These loans can offer significant benefits designed to help you achieve the dream of owning your own home.  Designed with first-time homebuyers in mind, the FHA has designed these loans not only to be competitive in the mortgage marketplace but also easier for you to qualify for if you are having problems getting a loan from a typical mortgage lender on terms you can live with.


FHA Fixed or Adjustable Rate


The FHA offers several types of loans; these include traditionally fixed-rate loans as well as adjustable-rate loans.  One of the benefits of an FHA adjustable-rate mortgage is they guarantee the interest rate on your loan will only change at most by one or two percentage points – no sudden surprises and massive jumps that may knock you off balance financially.


FHA Purchase or Rehabilitation Loan


They also offer a type of loan known as a purchase/rehabilitation loan that allows you to buy a home that needs a lot of work done it.  The loan combines the purchase price of the home plus the cost of doing the repairs to the home.  No more having to take out a mortgage loan and then worrying about where you will find the money to fix the house up to make it your dream home.  In fact, by doing a lot of the work yourself many homebuyers find they can easily afford to get more homes than they could buy one that is ready to move into.

Another big benefit of FHA loans is that they typically don’t require as large of a down payment as a conventional mortgage loan would.  They also offer loans to those whose credit may otherwise disqualify them for a convention mortgage.  In addition, the interest on an FHA loan is typically lower for those with less than perfect credit than it would be through a conventional loan program.


FHA Home Loan-Approved Lenders


It is important to know that the FHA itself does not lend you the money for the home and it does not set the interest rates on the loans.  The FHA is actually insuring the loan you are getting from a traditional lender. They are guaranteeing if you default, they will pay for your loan. FHA-approved lenders therefore typically offer loans with better interest rates and less down payment because they are guaranteed they will get their money back no matter what may happen in the future.

One easy way for most people to understand how the FHA works is by thinking back to when they were in college.  If you took out a student loan while in college it was guaranteed by the federal government that they would step in and repay it should you default on the loan?  As such, interest rates were typically low and standard across the board, and the loans were available to everyone regardless of their credit history.  The same holds true with FHA-backed loans, except there is no guarantee on interest – it is up to you to still make sure you are getting the best deal out there.


FHA Home Loan: Is It the Right Loan for You?


FHA Home Loan; could be the right loan program for you. FHA is a government loan that has been around for several years. FHA requires just a 3.5% down payment. Which means it will finance 96.5% for your home loan. FHA will have a 1.75% up-front MI (Mortgage Insurance), which can also be financed to your loan. This would total your loan to be 98.25%. Regardless of how much you put down on your home loan, you will still be charged a monthly MI. Credit is usually easier for FHA loans. Even if you have a lower credit score it will not affect the rate as much.

Don’t automatically assume that you can not be approved for an FHA Home loan. It may meet FHA requirements depending on your circumstance. You possibly may have options that can improve your poor credit scores within time. Some home buyers may need to spend six months to a year improving their credit history.

Your first step should be going to your lender and seeing if you can first be pre-qualified; if not they can take a look at your credit and determine if there are solutions to improve your credit scores. Contact FHA credit counseling or first-time homebuyer; counseling.


FAQs: What is an FHA Home Loan?


What types of loans does the FHA offer?

The FHA offers both fixed-rate and adjustable-rate loans. A key benefit of the FHA adjustable-rate mortgage is that it limits interest rate changes to one or two percentage points, preventing sudden financial surprises. This stability makes FHA loans an attractive option for borrowers seeking predictable payments.

Can I use an FHA loan to buy and repair a home?

Yes, the FHA offers a purchase/rehabilitation loan that combines the purchase price of a home with the cost of necessary repairs. This allows buyers to finance both the acquisition and renovation of a property, making it easier to turn a fixer-upper into a dream home without needing additional loans for repairs.

How does the FHA ensure better loan terms from lenders?

The FHA does not lend money directly but insures loans provided by traditional lenders. This insurance guarantees that if a borrower defaults, the FHA will cover the loan. As a result, FHA-approved lenders can offer better interest rates and lower down payment requirements, knowing they are protected against potential losses.

USA Mortgage Abadi Region

USA Mortgage Abadi Region

A full-service mortgage lender with local branches in Missouri, Arkansas, Illinois, and nearby areas.