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Federal Housing Administration Home Loan

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By : Sonia Smith    99 or more times read
The Federal Housing Administration home loan runs various programs to promote property or home ownership. The FHA home loan is obtained with the assistance of the FHA where a buyer could buy a home with a very small down payment. Moreover, this makes it easier to qualify for a mortgage. The FHA guarantees that the lender do not write off a loan in the event of a default by the borrower since the FHA will pay the mortgage. Almost anyone can avail of the FHA loan since it does not have income limitation, but it limits the amount that one can borrow.

Typically, you are limited to a small amount of loan that is relative to the prices of homes in your neighborhood. To qualify, you must have a reasonable debt to income ratio and should also have decent credit. The Federal Housing Administration home loan has considerably helped lower income families to borrow money to buy a home otherwise they could not afford to buy. To obtain a mortgage insurance from the FHA, a MIP or mortgage insurance premium that is equivalent to a percentage of the amount of the loan at closing is needed. This is normally funded by the lender, paid to the FHA on behalf of the borrower.

The FHA home loan program began in the 30s during the Great Depression when rates of foreclosure rapidly rose and was meant to provide lenders ample insurance. Some of the FHA programs were financed by the government but its aim is to make it self-supporting and based on the premium insurance paid by borrowers. Over time, PMI companies came about and today, the FHA serves mainly those who could not afford the standard down payment needed to qualify for the PMI.

The Federal Housing Administration home loan works in such a way that it pays lenders during default of a borrower on his or her loan. in order to finance this obligation, the FHA charges all borrowers a fee. People who avail of the loan will have to pay an upfront one percent MIP or mortgage insurance premium and pays a modest fee in every monthly payment. The FHA uses the insurance premiums to pay off the mortgage when a borrower defaults his or her loan. Nonetheless, this type of loan is not for everyone since the amount of mortgage may not be enough if you need a large amount. Moreover, the upfront MIP and ongoing premiums could cost more than the PMI.

In most cases, you could still buy a home with little down payment by using a standard loan instead of the FHA loan. People who have good credit could find competitive loan offers. Nonetheless, the FHA loan is definitely advantageous if you need additional funds to finance your home purchase. Make sure to explore all possibilities and weigh your options well before you proceed. Keep in mind that with a Federal Housing Administration home loan, the lender is will be more willing to provide credit because of the guarantee it receives from the federal government.
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