What is an FHA loan?
FHA loan or FHA insured loan is a mortgage loan insured by the Federal Housing Administration (FHA).
Does FHA provide the loan?
No, the FHA does not provide the loan. It guarantees that the FHA will pay in case the borrower defaults on the loan payments. Because of this guarantee, lenders are willing to make large mortgage loans.
How do I qualify for an FHA loan?
To qualify for an FHA loan, you should have a decent debt to income ratio. In general, the ratio has to be better than 29/41. You don’t need an absolutely perfect credit record to qualify for an FHA loan but you must meet certain credit criteria. Also, you must apply through a regular lender if approved by the FHA. Another important thing is to document your income well. In order to get approved for an FHA loan, you must account for every penny (of income) that comes in.
What are the benefits I will get with an FHA loan?
As the loan is insured by the Federal Housing Administration, you will receive several benefits:
- A down payment as low as 3.5 percent
- Easier to use gifts for down payment. Whereas other loans don’t allow money to come from family members, employer or charitable organizations
- Lower closing costs than what you shell out for a conventional mortgage
- Lower interest rate as compared with a conventional mortgage
- In case of foreclosure you will get assistance from the federal government
Is there a limit on how much I can borrow?
Yes. There’s a limit on the maximum amount you can borrow. The FHA loan limits vary according to the variety of housing types and the state and county in which the property is located. To look up your area’s loan limits, visit HUD’s Web site.
How do I secure mortgage insurance for a FHA loan?
To secure mortgage insurance for your FHA loan you need to pay an upfront mortgage premium and a monthly premium. In general, the upfront mortgage premium ranges between 1.50% and 2.50% of the mortgage balance where as the monthly premium amounts vary between .50% and .55% of the balance.