FHA loans are mortgages issued specially by government officials and state qualified mortgage lenders, which are secured by Federal Housing Administration (FHA). The Federal Housing Administration has a provision of insuring mortgage loans made by lenders officially approved by the FHA. The main objective of FHA is to insure home loans on a single family house or multi-family housing. FHA loans are mostly used while purchasing a new home and FHA secured loans is the first significant step in home buying transaction.
Federal Housing Administration loans are specifically designed for moderate loan borrowers who find it difficult to make lump sum down payments, involved in mortgage loan transaction. Almost up to 97% of the total price of the new home can be borrowed through the FHA loans. The remaining 3% that requires a down payment can be received as a gift offer or a grant. This essential feature and highly advanced loan borrowing facility, makes FHA loans extremely popular and trustworthy for new buyers.
The FHA was established in the year 1934 and then dissolved into the Department of Housing and Urban Development (HUD) in 1965. FHA organization has been insuring loans since its formation and has reached up to a benchmark of almost 33 million housing and home mortgages. Till date, its services are continual, providing loans and securities, thereby helping low and middle-income families buy their dream homes. Moreover, the numbers of borrowers are still counting. At present, FHA has successfully insured mortgages for more than 8 lac home owners. Comparatively, lower mortgage rates are obtained by insuring loans through FHA organization. This is an essential benefit offered by the Federal Housing Administration.
For instance, borrower of a single family home loan receives a down payment rate of as low as 3%; much better than the traditional rates offered by other organizations, of up to 10% to 15% mortgage rate. With this cheap mortgage rate, a low income home buyer can easily buy an expensive home. Yet another benefit of insuring your loan by FHA is that the lender is allowed to charge only one percent of the overall organization fees. Moreover, no penalties are charged for prepayment, i.e. you will not be penalized if you cross the deadline for paying off the loan. But prior to applying for loans, one must satisfy the organization’s criteria.
The borrower must have a decent credit record.
A compulsory 3 percent down payment is required.
The total ‘housing cost’ for your loan must not exceed 29% of the borrower’s gross monthly income.
The loan is not provided by the Federal Housing Administration; rather the lender gets its loan insured from the Federal Housing Administration. In due course, if the borrower tends to default and not abides by the lender’s terms and conditions, the lender can turn to FHA for assistance to seek recourse. This considerably lowers the risk the lender takes in lending to the borrower, and encourages them to issue a loan to their borrower.
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