The Federal Housing Administration is the largest mortgage insurer in the world, insuring over $1.3 trillion in home loans. Read on for the basics about FHA loans and if they are something you should consider applying for.
What Are FHA Loans?
Luckily, there’s no tricky or hidden definition here. FHA loans are exactly what they sound like: mortgage loans backed by the FHA. An FHA-approved lender sets you up, and then the government agency insures the loan. Because the loans are insured, their interest rates are more competitive compared to those of conventional loans.
What Advantages Do They Provide?
According to the U.S. Department of Housing (HUD), FHA loans benefit people who are looking for lower down payments, lower closing costs, and less strict credit requirements. In fact, HUD states, these loans can potentially offer a down payment as low as 3.5% of the purchase price. Additionally—unlike other loan programs—the FHA allows for the down payment money to come from your family, your employer, or a charitable organization. This opens doors for first-time home buyers who may have lower incomes and less-than-perfect credit.
Something To Keep In Mind
Be aware that, although they provide insurance, the FHA does not directly finance or set interest rates on any mortgages. As always, shop with savvy. Just because the terms of FHA loans seem more relaxed, it doesn’t mean that you should relax too much during your selection process. Research several different FHA-approved lenders and compare several loan options.
Where Do I Start?
There’s a lot of information out there about FHA loan offers, so an initial internet search can leave you feeling overwhelmed. Here are a few online resources that can help get you started:
- https://top10mortgagebrokers.com/fha-mortgage/: Top 10 Mortgage Brokers’ FHA mortgage broker directory can help you find an FHA-approved lender in your area.
- https://www.hud.gov/answers: A searchable database of frequently-asked questions about FHA programs, broken down by category.
- https://www.hud.gov/buying/loans: A brief definition of FHA loans, with links to pages about specific FHA programs.
The takeaway: FHA loan programs can be an excellent option for people who are looking for low down payments and/or have a less-than-savory/nascent credit history. As always, be sure to do your due diligence when selecting a lender.
This article is one in a series about different types of home loans. For the next article in the series, click here.
Disclaimer: These articles are intended for general informational purposes only and do not substitute the advice of qualified mortgage professionals. Please always consult your mortgage broker or loan officer when it comes to making decisions.