With all of the choices out there, finding the right loan can be a daunting task. FHA loans are one of the more commonly available options.. The Federal Housing Administration has been around for a long time and they have some pretty solid mortgage programs that you can take advantage of. Be sure to keep FHA in mind as it can provide an excellent program if you don't already have an FHA mortgage.
In need for a quick rundown of what FHA is all about? The Federal Housing Administration isn't actually a loan originator. They just provide the means for home lenders to offer another form of financing for borrowers who meet the criteria. Not all home lenders provide FHA home loans though, so be sure to do your homework..
The distinction between traditional loans and FHA home loans is that the Federal Housing Administration actually insures the loan originator in the case of borrower default. This insurance allows the mortgage lender to offer a more adaptable program that means you might be able to get a better mortgage. With a non-FHA mortgage, the bank is the one who gets stuck with the bill in the event of foreclosure.. Private home loan insurance is a common thing that most people are required to buy unless they can put down 20% of the mortgage loan up front. This insurance protects the loan originator from losing more than what is owed against the house in the event of foreclosure. Private mortgage loan insurance can add a lot of money to your monthly payment and perhaps put the house that you want to buy out of reach. When banks do not make you buy private home loan insurance, they are taking on all of the risk of default.
With an FHA mortgage loan, the FHA is taking on all of the risk. If you default on the mortgage, the FHA will pay the bank the amount remaining on the mortgage loan. This takes the burden off of the banks and puts it elsewhere. Therefore, the banks are now willing to make more home loans to people that they would not normally mortgage to. Therefore, you might be able to meet the requirements for an FHA mortgage loan even if you have failed to qualify for other programs.
Another big advantage of the FHA programs is that you do not have to make a large down payment. Because such a low down payment is obligated, the FHA program allows for a lot more buyers to buy a propery than would otherwise be able to do. Many traditional home lenders require a much higher percentage down, which eliminates a huge portion of the market.
FHA loans are also offered with no prepayment penalty. Some mortgages carry steep penalties for paying off the loan earlier than 30 years. There aren't any pre-payment penalties associated with an FHA home loan.
To decide if an FHA loan is best for you, be sure to discuss your options with your local home loan specialist.
