August 13th, 2012 2:47 PM by Gregg Mower
What is a FHA loan and why should I get one? This may be a question you have or are asking yourself when you purchase a home. Most first time home buyers do not have 10 to 20 percent to put down on a home when they are buying tier first home. In 1933 The Department of Housing and urban Development or HUD as we now know it by was established. The Federal Housing Administration (FHA) was established under HUD to insure private lenders of the risks associated with low down payment home loans. FHA does not purchase home loans in the secondary market, they insure them. Most folks think that FHA actually buys loans from lender, this is not true FHA insures the lender the yield on the loan. Where the loan is serviced and sold to are completely different places and will be for another blog. For now let’s think of FHA as a loan that will allow you to put down 3.5% of the sales price of a residential real estate transaction.
Advantages to using a FHA insured mortgage are many and we will try to go over a few in this article. Aside from a 3.5% down payment FHA will also allow all of that money and all closing costs to be a gift from a blood relative or an established relationship. FHA loans allow for a larger percent of your income to be a house payment, if it makes sense. FHA will allow for co-borrower not to live in the house where convention loans will require that the co-borrower live in the house being financed. FHA will do a more thorough inspection of the house to protect any unsuspecting home buyer from problems that may arise is an older home where as conventional loans are not as stringent. Currently FHA loans have lower interest rates than their counter parts the conventional loan. Underwriting guidelines on FHA loans are little easier for the buyer to get approved as well.