The FHA Loans
One of the top kinds of loans is the FHA Loan. It is a kind of loan insured by the Federal Housing Administration (FHA). If you are looking for some facts about the FHA Loans and whether it is a good fit for you, read on this article to find out more about the loans.
What is an FHA Loan?
An FHA Loan is a loan guaranteed by the Federal Housing Administration (FHA). It is unique because of the following characteristics:
- The downpayment is at least 3.5 percent of the total property value.
- The borrower is required to have a credit score of more than 580 to get the 3.5%.
- The borrowers with a credit score of 500 to 579 pays a downpayment of 10%.
The Origins of the FHA Loan Program
The FHA Loan Program begun in the 1930s as a way for the government to help those who became a victim to rash foreclosure and defaults. Two main goals were attributed by the government, to wit:
- To provide mortgage lenders with adequate insurance that will allow them to lend more and protect their interests at the same time; and
- To help stimulate the housing market by allowings more people to get housing loans.
Essentially, the end goal is to provide a win-win situation where the government could insure loans for the lenders and allow individuals to borrow more.
What are the requirements to obtain an FHA Loan?
In order to obtain an FHA Loan, the following are the requirements:
- The borrower must have an employment history that is steady. An employment is considered steady if the borrower worked for the same employer for the past two years before applying for the loan.
- A valid social security number is required. Your social security number plays a pivotal role in whether you get approved for a loan or not.
- The borrower must also have a lawful residence in the United States.
- The minimum downpayment must be 3.5% of the total loan. The amount does not need to come from the borrower and can be a gift from a relative.
- The property must have been appraised by an FHA-approved appraiser.
- The borrower should be able to shoulder the debt and his front-end ratio must be less than 31 percent of his gross income.
- The borrower must have a FICO score of at least 580.
- His back end ratio must be less than 40 percent.
- The borrower must have good credit but if that is not possible, at least he must have re-established his good credit.
- The property that he is buying must meet the minimum standards.
What Are The Advantages of an FHA Loan?
There are many advantages to obtaining an FHA Loan and they are the following:
- FHA Loans typically have lower credit score requirements and the downpayment is easy to manageable.
- Since the down payment is low, the closing costs is low as well.
- The loan is assumable. Hence, if through a stroke of luck, the homeowner gets into a big wad of cash and wants an upgrade, he can easily get the loan assumed by another buyer.
On the contrary, there is one problem that most buyers have with FHA Loans and that is the reality that they have to cover the upfront mortgage insurance premiums. For an FHA Loan, the mortgage insurance premium is 1.75 percent of the loan amount.
Is It Time To Get An FHA Loan?
In order to fully get all of the requirements and get done with the processing of your documents, hire a mortgage professional and you can get all of the help that you can get.
This is should be a prospective customer's number one call to action, e.g., requesting a quote or perusing your product catalog.