FHA Home loan

What is an FHA Loan?

An FHA loan is a loan that is insured by the Federal Housing Administration (FHA). It is designed to help people, who are in a lower income bracket, purchase a home. The FHA was created through the National Housing Act of 1934 and is designed as a loan program to assist lenders by offering a federal insurance on home loans. It is important to understand that the FHA does not act as a lender and is not a home builder. It is an insurance program to protect the lender in the case that you are no longer able to make your mortgage payments. Recently, the FHA program has undergone some changes to help people buy a home today as a result of the recession and jump in foreclosures.

FHA Loan Requirements

An FHA loan has to be obtained through an FHA approved lender and there are several FHA loan requirements/guidelines that you should be aware of:

• Credit - The FHA will examine your credit history and you will need to show that your credit is in good standing and that you have a proven record of paying your bills on time.
• Loan checklist - There are several things that you will need to submit to the FHA lender in order to be approved for the loan. You should also plan to pay some money out of pocket for the credit report check and for an FHA appraisal on the property you are purchasing.
• Loan limit - Each state and county has its own lending limits when it comes to an FHA loan so you want to be sure to research the guidelines for your area to see if you can qualify.
• FHA mortgage insurance - Part of FHA loan qualifications call for the necessity of carrying mortgage insurance in case you are no longer able to meet your payments.
• Debt ratio - The amount of money that you can borrow on an FHA loan will depend on your debt to income ratio. This is done to help you avoid purchasing a home that you cannot really afford.
• Closing costs - The details of what you will be required to pay, as part of your closing costs, will vary as each FHA office determines what is appropriate.

FHA Loan Limits

The FHA determines how much you can borrow in your area by examining the median price for the type of home that you are looking at in that specific area. This is why loan limits are different for each area and for each state.

FHA Loan Vs Conventional Loan

• Government insured - the biggest difference between an FHA loan and a conventional loan is the fact that an FHA loan is insured by a government agency which a conventional loan is not.
• Credit history - a conventional loan requires a good credit history and has strict requirements you must meet while an FHA loan is a little more relaxed.
• Down payment - With an FHA loan, you can make a smaller down payment. A conventional loan requires a bigger down payment.
• Mortgage insurance - all FHA approved loans include mortgage insurance. Conventional loans use a separate process and you must qualify for the insurance.