During the mid-1930’s, economies worldwide had started to recover from the depression, but it was not until the conclusion of World War II that the complete scope of global financial damage had been mitigated. During the height of the Great Depression, few homeowners had the ability to pay off their mortgages. Foreclosed upon homes had reduced property values and refinancing was not available. In 1934, the entire banking system was re-organized and with the National Housing Act, the Federal Housing Administration (FHA) was created. The new lending practices of the FHA drove up the number of people who could afford down payments and mortgage payments, expanding the housing market and playing a role in the nations economic recovery. In 1965, the FHA was merged with the Department of Housing and Urban Development(HUD).
What Are FHA Loans?
Since the inception of the FHA in 1934, FHA/HUD have issued mortgage insurance for more than 34 million home mortgages. The largest insurer of mortgages in the world, the FHA guarantees mortgages for single family and multi-family homes encompassing manufactured homes and hospitals. The only branch of the government to fund itself through self-generated revenue, this agency costs taxpayers nothing.
So what are FHA Loans?
Similar to VA and USDA Loans, FHA Loans are government insured; meaning, lenders are protected against the financial ramifications of homeowners defaulting on their mortgage payments. The loan is funded by a third party approved FHA lender, conforming to FHA guidelines, and because of the loan guarantee, the FHA provides federal assistance to low and moderate-income homebuyers. The mortgages are easy to obtain. Underwriting guidelines are lessened in comparison to conventional loans.
This mortgage offers the borrower the ability to put as little as a 3 percent down payment. Homebuyers can pay the down payment with a grant, sweat equity, or even a gift. Certain “allowable” closing costs can either be financed into the loan, or credited by the seller or lender. The Seller can contribute up to 6 percent of the purchase price to the buyer towards closing costs. FHA mortgage is ideal for buyers who have had a prior foreclosure, short sale, bankruptcy or are a “first-time” buyer.
The basic qualifications requirements to qualify for an FHA home loan are:
- Steady income
- No late payments on any debt in the last 12 months
- Acceptable credit score (varies by lender).
- No existing FHA loans (you may only have 1 FHA loan at a time)
What Is The Difference Between a Traditional Loan and An FHA Loan?
In comparison to other conventional loans, FHA qualifying guidelines are far less strict. Traditional loans generally call for down payments ranging between 10 and 30 percent; the FHA down payment is 3.5 percent. Unlike other loans, applicants can potentially qualify for an FHA loan with a credit score as low as 580 (or 500 in some circumstances). The FHA loan has better interest rates than conventional mortgages do. Additionally, co-signers (parents or relatives) can help applicants qualify for an FHA loan. Gift money can also be used to make the down payment.
Other key differences between a conventional loan and an FHA loan include:
- No minimum FICO score requirement for FHA (note each lender will set the minimum credit score).
- Following a bankruptcy (two years) or foreclosure (three years) borrowers can still qualify for an FHA loan.
- An FHA loan can be assumed by a new buyer if the borrower decides to sell the home down the line.
- Buyers can borrow more than the purchase price with an FHA loan to fund repairs.
The easier qualifying standards and smaller down payment requirement makes the FHA loan both the better choice for prospective borrowers and in many cases the only choice.
To Apply For FHA Loan Program:
To apply for an FHA Mortgage or FHA Home Loan, fill out the VA Home Loan Application located here.
For instructions to complete the FHA/Government Subsidized Home Loan Application for FHA Mortgage or FHA Home Loan use, visit the link located here.
If you need further assistance, please call 888-573-4496.