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FHA Mortgages

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 a home.

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.


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