Understanding FHA Loans and their Role in
Purchasing Your Home
If you are looking to buy your first home, then you owe it
to yourself to check out the loans offered by the Federal
Housing Administration (FHA). These loans can
offer significant benefits designed to help you achieve the
dream of owning your own home. Designed with first-time
homebuyers in mind, the FHA has designed these loans not only
to be competitive in the mortgage marketplace, but also easier
for you to qualify for if you are having problems getting a
loan from a typical mortgage lender on terms you can live
with.
The FHA offers several types of loans; these include
traditional fixed rate loans as well as adjustable rate
loans. One of the benefits of a FHA adjustable rate
mortgage is they guarantee the interest rate on your loan will
only change at most by one or two percentage points - no
sudden surprises and massive jumps that may knock you off
balance financially.
They also offer a type of loan known as a
purchase/rehabilitation loan that allows you to buy a home
that needs a lot of work done to it. The loan combines
the purchase price of the home plus the cost of doing the
repairs to the home. No more having to take out a
mortgage loan and then worrying about where you will find the
money to fix the house up to make it your dream home. In
fact, by doing a lot of the work yourself many home buyers
find they can easily afford to get more home than they could
buying one that is ready to move into.
Another big benefit of FHA loans is that they typically
don't require as large of a down payment as a conventional
mortgage loan would. They also offer loans to those
whose credit may otherwise disqualify them for a convention
mortgage. In addition, the interest on an FHA loan is
typically lower for those with less than perfect credit than
it would be through a conventional loan program.
It is
important to know that the FHA itself does not lend you the
money for the home and it does not set the interest rates on
the loans. The FHA is actually insuring the loan you are
getting from a traditional lender.
They are guaranteeing if you default, they will pay
for you loan. FHA-approved lenders therefore typically
offer loans with better interest rates and less of a down
payment because they are guaranteed they will get their money
back no matter what may happen in the future. Of course,
to get the best rates possible you should still shop around
and compare mortgages offered by several FHA-approved
lenders.
One easy way for most people to understand how the FHA
works is by thinking back to when they were in college.
If you took out a student loan while in college it was
guaranteed by the federal government that they would step in
and repay it should you default on the loan. As such,
interest rates were typically low and standard across the
board and the loans were available to everyone regardless of
their credit history. The same holds true with FHA
backed loans, except there is no guarantee on interest - it is
up to you to still make sure you are getting the best deal out
there.
If you are a first time homebuyer with limited amounts
of funds to put towards your purchase, or if you have had
credit problems in the past, you may find that an FHA loan
gives you the freedom and flexibility you need to get into a
house and start making it a home for your family.
More information on FHA loans is available at http://www.fha.gov.
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