How FHA Loans Work

If you are looking to become a first time homeowner, you may have run across the term “FHA Loan” and wondered exactly what it involves. The FHA created a loan program in 1934 as a way to help American families who could not otherwise qualify for a conventional loan to afford homes. It also implemented programs to help prevent foreclosure of those who already had an FHA Loan.

Characteristics

First time homeowners who are just barely eligible for a conventional loan should consider going through the FHA to obtain the loan. The FHA makes the loan process much simpler and more affordable than conventional loans. They do this by not requiring a huge down payment on the house. The borrower also won’t have to pay private mortgage insurance (PMI) and will be able to take advantage of competitive interest rates.

What “FHA-insured” Means

The FHA does not issue the money itself; rather, it insures a privately issued loan for you. This helps make you a very secure and desirable borrower to private lenders, even if you have a low credit score. Qualifying for an FHA-insured loan is much easier than qualifying for a conventional loan as well. The rules on income and credit scores are much more lenient, making it possible for all Americans to realize the dream of homeownership.

FHA Fee

The FHA does issue a small fee for the loan program. This fee is usually no more than 1.5% of the total cost of the loan, and the price is generally built into the premium of the loan. However, the fee is still much lower than the price of PMI.

Requesting an FHA Loan

Once you find the house you want to buy and the lender you would like to obtain the loan from, you will need to discuss your loan options. There are a lot of FHA-approved lenders out there who are willing to help you navigate the FHA loan process.

Getting Pre-approved

Getting pre-approved for an FHA Loan is a great way to make sure you meet the lender’s requirements before you start looking for houses. By filling out our secure online form, we’ll have you pre-qualified for free within minutes.

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