The Federal Housing Administration (FHA) runs several programs to promote home ownership, including providing potential homeowners with opportunities to secure an FHA loan. An FHA loan is a mortgage insured against default by the Federal Housing Administration. The FHA backs the loan so a lender won’t have to write off the loss if the borrower defaults–the FHA will pay.
Qualifications for an FHA Loan
One of the best things about FHA loans is that they’re easier to qualify for and most people can obtain one. Unlike first time homebuyer programs, there are no income eligibility qualifications for this program. However, the amount of money a borrower can be granted is limited, and it’s generally a small percentage of the total purchase price of the home. Applicants considering FHA loans must also have good credit and a reasonable proportion of debt to income.
Benefits of an FHA Loan
You may be wondering if an FHA loan is right for you. There are certainly advantages to borrowing directly from the Federal Housing Administration. For instance:
- Buyers can purchase property with as little as a 3 percent down
- Gifts can be used to pay closing costs and down payment
- There is no prepayment penalty
- There may be some leniency in making payments if the borrower experiences financial hardship
Types of FHA Loans
The Federal Housing Administration backs a variety of mortgage loans, so you’re sure to find a home loan that works for you if you decide to go through the FHA. They include
As with any type of mortgage, there are both advantages and drawbacks to consider. Fully research your home loan options and always discuss them with a qualified professional before making a decision.