Many people struggle to be able to buy their first home.
Often-times, they may have had some financial hardship in
their past, or might not make as much money as many homeowners.
For these people, a mortgage guaranteed by FHA may be one
of their best options, and possibly the only feasible option,
for owning a home.
FHA is a federal program that serves the function of guaranteeing
loans that lender’s might otherwise be hesitant to make.
FHA insures that even if the borrower defaults, the lender
will not lose money on the loan transaction. The FHA began
in the 1930s as a measure to promote the making of new loans
and hasten the country’s recovery from the Great Depression.
After the depression ended, FHA remained to help low and moderate
income people, and those with poor credit, be able to purchase
FHA sets specific limits, by region, for the size of the
loans they will guarantee. While anyone who falls within the
limits can get an FHA loan, they are designed for those who
cannot meet a down payment of at least three percent or who
have poor credit. For others, FHA loans will likely cost more
than the other available options.
With FHA, the down payment on your home can be as low as
one percent. This provision is very helpful for individuals
who don’t have large savings. Private mortgage insurance
(PMI), on the other hand, requires at least a five percent
down payment, though three percent down payments are sometimes
accepted under special circumstances. FHA also is much more
forgiving for those who use gift money for their down payment.
FHA also allows higher expense to income levels and higher
amounts of current debt that PMI. If you are using a co-borrower,
the FHA will allow you to use his full income even when he
will not be living in the house. Bad credit is also treated
more liberally by the FHA, insuring those with a Chapter Seven
bankruptcy two years later, and those with a Chapter Thirteen
bankruptcy only one year later.
Overall, the FHA can be a valuable resource when looking
for a principal mortgage, especially if you have low income,
inadequate savings, or a bad credit history.