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FHA Loans

Have you heard about FHA loans? These loans are outstanding options to buy a home in the United States. FHA loans are backed by the Federal Housing Administration (FHA).

What are FHA loans?

FHA loans are offered by federally insured lenders and they are backed by the FHA which is a division of the HUD (Department of Housing and Urban Development). As a result, the lender can give you the loan at better terms and conditions which include but are not limited to the following:

  1. Affordable closing costs
  2. Reduced down payments
  3. Easier credit score prerequisites

FHA loans have been working as useful home buying options since 1934. The Federal Housing Administration assures that a lender doesn’t need to cancel a loan in case the borrower fails to repay the loan. The FHA will be compensating the lender. Due to this assurance, lenders are ready to offer mortgage loans.

Who can qualify for FHA loans?

Nearly everyone can qualify for an FHA loan. There are no income requirements that are usually applicable for first time home buyer programs. Nevertheless, there are restrictions on how much you can borrow. In most cases, you can qualify for comparatively small mortgage loans suitable for houses in your neighborhood.

If you want to be eligible for an FHA loan, your debt to income ratio should be sensible. A ratio of 29/41 is the minimum requirement. Furthermore, you should have a fair credit score. It shouldn’t be outstanding but has to be decent.

Purposes of obtaining FHA loans

An FHA loan can be used for various purposes. Some of the common purposes of taking out an FHA loan are given below:

Home purchase

You can use an FHA loan to buy a home. Your down payment will be as small as 3.5% of the purchase price and the greater part of the fees and closing costs will be incorporated in the loan amount. The loans are available for 1-4 unit properties.

Financial assistance for senior individuals

Are you 62 or older? Are you staying in your own home? Are you the absolute owner of the home or have a nominal outstanding balance? If the answer to the above questions is yes, then you can go for a reverse mortgage from FHA. It allows you to switch a part of your equity into cash. This reverse mortgage program is also known as Home Equity Conversion Mortgage (HECM).

Looking for a fixer-upper?

FHA offers a loan that enables you to buy a home, renovate it and incorporate all the costs into the loan. Or, if you have a home and you want to renovate or modernize it, you can refinance the amount that is outstanding and sum up the cost of renovation with a single loan.

Energy efficient homes

If you want to make your home energy efficient, then you can incorporate the expenses of energy improvement into an FHA loan.

Looking to buy a manufactured or mobile home?

FHA has loans for mobile or manufactured homes. There are two types of loan programs – one for those who have purchased the land where the home will be placed and another for mobile/manufactured homes that will be placed in mobile home parks.

Advantages of FHA loans

Given below are some important benefits offered by FHA loans:

  1. Affordable interest rates
  2. Lower down payments
  3. 6% seller contributions
  4. Allowance of gift funds
  5. Smaller closing costs

You can talk to an FHA lender to get more details about these loans.

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