FHA Home Loan

By: EconomyWatch Content   Date: 14 December 2009

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The US housing development authority, FHA (Federal Housing Administration), offers a range of schemes to promote home ownership, particularly among the average and lower income groups. The FHA home loans are mortgages insured by the FHA and funded by lending institutions.

 

In this scheme, a borrower pays a mortgage insurance premium to the FHA, which is 1.5% of the loan amount. Moreover, the borrower also has to pay a small fee to the authority in addition to periodic installments. If the borrower defaults on the payment, the FHA uses the insurance premium to pay for the loan.

 

FHA Home Loan: Types

The FHA home loans are available for a range of housing-related needs, such as:

 

  • Purchasing a new home.

  • Remodeling a newly bought home.
  • Making repairs to an already owned home.
  • Making energy-efficient improvements to the home.
  • Refinancing an existing home loan to avoid foreclosure.

FHA Home Loan: Eligibility

 

To promote borrowing, the FHA home loans have no income limits unlike the conventional home loan programs. However, the program places limits on how much an individual can borrow. Generally, the FHA guarantees a small home loan amount. The amount of borrowing is relative to the market prices in the area where an individual buys home.

 

Other eligibility conditions to receive FHA home loans are:

 

  • Good credit record (no negative remark on credit report works, exceptional credit record is not required)
  • Good debt to income rations. Generally, it should be higher than 29/41.

FHA Home Loan: Benefits

 

The FHA home loans offer a huge range of benefits, such as:

 

  • They are guaranteed by the federal housing authority. Thus, lenders are eager to give loans with larger amounts to the borrowers.
  • An individual can avail a home loan with a small down payment as low as 3%.
  • There is no prepayment penalty on such loans.
  • The lending institution may allow the borrowers to pause installments during periods of financial hardship.

 

The FHA home loans are the best choice for many small to medium-sized borrowers. However, many non-FHA loans are also available in the market that offers similar capacities. As purchasing a home loan is, most likely, the biggest investment for an individual, one has to consider all possible options before making a decision.


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