An FHA home loan is a type of mortgage guaranteed by the US Federal Housing Administration. A FHA loan can be provided only by FHA-approved lenders in the United States or those reside in its 14 territories such as Guam, Puerto Rico, American Samoa, the Northern Mariana Islands, and U.S. Virgin Islands. This is a type of financial assistance from the government to the low-income Americans in order to help them in the purchase of a home.
Advantages of FHA home loan
When you are looking for the right kind of mortgage product to help you get into a home, the three most common types you hear about are conventional, VA, and FHA mortgages. While all three are popular mortgage products, let’s look more closely at the FHA loan.
People who have been looking for a bad credit mortgage have often been able to go with an FHA home loan because the credit requirements are not as strict as with conventional loans. Many people who have excellent credit have used FHA loans as well. You may wonder why so many borrowers opt for FHA home loans.
Both borrowers and lenders like the fact that FHA loans are regulated and insured by the Federal Housing Administration. This means that the lender has less risk if the borrower cannot make all the payments because the federal insurance will cover the loss. For the borrower, the insurance by the FHA means that the down payment is only 3.5% of the total value of the home they wish to purchase. With a conventional loan, one is required to pay somewhere between 10% and 20% of the home’s value as a down payment. With the ability to go with a smaller down payment, the house becomes much more affordable.
Because of the current economy, many people struggle to keep enough money in savings to meet the high down payment requirements for conventional mortgages, an FHA loan is a definite plus. Even if you need a bad credit mortgage, your down payment is low and your interest rate will be competitive.
FHA loan requirements
There are specific guidelines to qualify for an FHA loan. As mentioned, the credit requirements are somewhat less stringent than those of other loan products. If you are thinking of mortgage refinancing and currently have an FHA home loan, your current lender may be able to streamline your mortgage refinance. This means little in the way of documentation because they already have your information and are simply refinancing your current mortgage with a new rate.
For many people, the lower credit score requirements, the lower down payments that are required, and the standardized specifications make it easy to know what you need to do to get this type of a loan. With interest rates staying quite low, the rates for these loans are quite competitive and you can get terms of 15, 20, and even 30 years.
If you can meet the basic qualifications of income, employment and down payment, you may want to think about getting an FHA loan while the rates are still low.
For more information, visit FHA loan requirements doe 2017
FHA loan limits
FHA loan limits differ depending on the area of the home. For instance, in high-cost areas, the limit (ceiling) is $636,150. It used to be $625,500, but that amount has been increased this year, 2017. The same, FHA has increased its “floor” to $275,665 from $271,050.
In addition, the maximum claim amount for reverse mortgages or home Equity Conversion Mortgages (HECMs) has increased to $636,150. This amount represents 150% of the national conforming limit of $424,100 according to the FHA.