FHA Home Loans

In addition to conventional financing a number of government loan programs exist for qualified borrowers. These programs are updated every so often to keep pace with more recent developments.

The Federal Housing Administration (FHA) was established by Congress in 1934. The FHA does not make loans itself, rather it insures approved lenders against borrower default.

The FHA insurance plan is know as Mutual Mortgage Insurance Plan (MMI). Under the plan approved lenders either accept or reject applications based on FHA loan guidelines. The question of FHA vs conventional financing can be a big one. In general, FHA financing favors first time and low income buyers when compared to conventional lenders. The FHA loan guidelines permit borrowers who have previously had credit troubles, such as a recent bankruptcy. A person who has undergone Chapter 7 bankruptcy (all debts erased), can apply after 2 years, while a person who has filed Chapter 13 bankruptcy (debt restructured, and payment plan established) can apply after 1 year. There are several FHA loan programs that cater to a variety of needs. Among these are fixed rate mortgages, adjustable rate mortgages, and housing rehabilitation mortgages. The programs usually have very favorable terms that will aid homebuyers.

Although an FHA insured loan can be advantages, there can be some disadvantages as well. The FHA has maximum loan limits in order for the property to qualify for a loan, and so this excludes many houses from FHA programs. The limit itself depends on the area and varies by state. Another disadvantage is that an FHA loan may cost the seller more money than a conventional loan would. The agreement might demand the seller pay points, which is permitted by the FHA. An FHA insured loan usually takes longer to close than conventional loans, since all FHA requirements must be followed. The mortgage insurance premium (MIP) program is the FHA's equivalent of Private Mortgage Insurance (PMI), but can sometimes end up costing more than PMI.

An FHA insured loan can help first time, and low income buyers realize the dream of homeownership. However an FHA loan is not beneficial to everyone, especially if you are looking at a home that exceeds the loan limits set by the FHA. Be sure to consider other financing options as well before coming to a decision about getting an FHA insured loan. Currently some modifications are being considered in Congress, so be sure to visit the FHA website to get the most up to date information.

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