What is an FHA home loan?

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 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 / 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/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 to 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 home buyers find they can easily afford to get more home 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 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 of a 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.

About Reza Abadi