About Fha loans
Introduction
The FHA loans are federal housing administration loans that are provided by an approved FHA lender. These type of loans are of federal assistance and are designed to enable low income earners and people with blemished credit history to borrow money for purchasing homes that they would have been able to afford without the aid of the FHA loans. The FHA acts as a guarantor to the loan borrower. There may be monthly premiums depending on the loan to value ratio. The FHA insures loans and has directed it's approved lenders to take loan applications, process loan applications, underwrite and close the loan. The FHA loans have limits that vary from one period to another but have no income limits meaning that anyone can qualify for a FHA loan.
History
The FHA loans program was established during the great depression period when the foreclosures and defaults rose at an alarming rate. It was established in 1934 by the American government through the national housing act so as to improve the housing standards, unemployment levels and living conditions of the American citizens. These FHA loans were subsidized by the government and it aimed at supporting itself through the premiums paid by the borrowers. However, private mortgage insurance companies were introduced hence leaving the FHA loans to be for those individuals who cannot afford or qualify for the private mortgage insurance. Several changes have been made on the FHA loans. Like in 1980, the negotiation of interest rates on certain loans was made possible. In 2007, it introduced a refinancing program known as FHA secure.
Features of FHA loans
- Allow blemished credit history: Unlike other types of loans, the FHA loans allow people with past financial difficulties to apply for the loan. It does not disqualify on the basis of a blemished or bad credit history of the applicant. An applicant who is declared bankrupt can obtain a FHA loan two years after the date of bankruptcy discharge as long as good credit has been maintained since the debts were discharged.
- Has competitive rates and terms: It has had little or no adjustments in the interest rates which vary from 0.125% of the acquired loan. The mortgage is part of the loan thus, a 1.5% premium is added to the loan balance instead of being paid from the cash in hand. The mortgage rates are less than the private insurance companies rates.
- It demands fewer repairs: It demands for the following repairs. Defective roofs that leak and windows that have cracked panes and stick when opened. FHA does not take a home inspection buyer obtain home inspection for themselves.
conclusion
FHA loans are not meant for everybody. But they are of great help to the borrowers since they allow people to buy homes with a down payment that is as low as 3.5%. Other mortgage loans do not allow such a low percentage. Applying for a FHA loans comes with the following benefits;
- has on prepayment penalty
- FHA loans are assumable
- there is a chance of leniency during financial distress
- offers funding for home improvement
- it's easy to use gifts for down payments and closing costs.
However, FHA loans may not offer enough money if an individual is in need of a large mortgage loan and the upfront premiums can be more than those offered by the private mortgage providers.
