For most people, a mortgage is needed to buy a home, even in a down housing market. People with low income, bad credit, no credit and other obstacles, often have problems getting a loan to buy real estate. The government agency HUD offers many programs such as the FHA loan. This program helps people to purchase a residential property.
What are FHA Loans?
Many people mistakenly think that a FHA loan is a mortgage program. It is not. The Federal Housing Administration (FHA) is a division of HUD (Housing and Urban Development.). HUD has numerous programs available to help people with their housing needs. The FHA program does not lend money. Instead, it offers mortgage insurance. This insurance makes it easier for a homebuyer to get a mortgage from a lender. With the FHA loan in place, the government guarantees repayment of the mortgage if the homeowner goes into default by not making the monthly payments.
With FHA mortgage insurance, a lender is more likely to let you borrow money. If you stop paying off the loan, the lender eventually forecloses on your property. Although you will lose your home, the mortgage lender will not lose the money it lent you. The government then steps in and pays off the balance that you owe.
This program also helps with refinancing mortgages. If you develop financial difficuties such as a being laid off or having your salary reduced, you can also use the FHA to help with refinancing for a lower interest rate. Refinancing can help you to keep your home and avoid foreclosure in many cases.
Requirements for Getting FHA Loans
The government has certain requirements for getting FHA mortgage insurance. First-time homebuyers are given priority. The property you want to buy has to be your primary residence. There are also Income restrictions. The type of property you want to buy is also a factor. The FHA program allows you to buy a single-family home, townhouse, condominium or one-to-four unit building. You can also purchase a mobile home or a manufactured. Purchasing a fixer-upper is also an option.
How to Get a FHA Loan
After seeing if you meet all the necessary requirements, you have to fill out the FHA application and supply supporting documents such as paystubs, bank statements, credit reports, and other materials to access your financial situation. Once you have a letter from the FHA verifying you can get mortgage insurance, you then need to determine the type of mortgage you want. There are many types to choose from such as fixed rate, adjustable rate, and balloon mortgages, just to name a few. The next step is searching for mortgage lenders with good interest rates.
Buying residential real estate is a long and complicated process. The FHA loan program has helped millions of people to buy a home. Getting FHA mortgage insurance is just one of many steps on the journey to homeownership. After locating your dream home, the next most important step is getting a mortgage.