What are FHA Loans?
Established in 1934 during The Great Depression, The Federal Housing Administration (FHA) program’s purpose was to encourage home ownership despite the difficult economic times. For consumers who may not qualify for a standard loan, FHA enables them to obtain the financing they need to purchase a home without income limitations — exactly what consumers of that time needed.
Different from other loan types, FHA loans are insured by the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). Because this insurance reduces the lender’s risk on the loan, lenders have greater flexibility to approving loans. The Federal Housing Administration is the largest insurer of mortgages in the world, insuring more than 34 million properties since its inception.
Growing in popularity since 2005, the FHA loan program has grown by more than 900 percent. Why? The Federal Housing Administration has made several key changes making it more popular for today’s consumers. For instance, FHA maximum loan limits have been raised across the board and housing prices are in a slump. This means that a higher percentage of homes qualify for FHA financing than ever before. Because of these FHA Loan requirement changes, millions more now qualify for an FHA Loan, one of the best choices for prospective homebuyers in today’s market.
What are the benefits of an FHA Loan?
What makes the FHA program unique is the multiplicity of benefits it offers to borrowers, including:
- 3.5 percent down payment
- Low monthly mortgage insurance
- Relaxed credit score requirements
- Quicker qualify post-bankruptcy and post-foreclosure
When compared to a conventional loan, FHA loans become a much better choice for some borrowers.
What if my credit history is less than perfect?
In today’s tight lending environment, an FHA loan is often the best choice for borrowers with past credit issues. Borrowers can have lower FICO scores than that required for conventional loans. Additionally, borrowers may still qualify for an FHA loan with a few blemishes on their credit history. Unlike conventional loans, borrowers can have filed for bankruptcy two or more years prior, which is half as long as what’s required for conventional loans. If the borrower has previously foreclosed on a property, the waiting period is only three years, as opposed to four years for conventional loans.
What if I’m a first-time homebuyer and have no credit score? Can I still qualify?
With the federal tax credit, now is one the best times for first-time homebuyers, but qualifying for a loan can be problematic for this group as they likely have limited or no credit history. For first-time homebuyers with no credit scores, FHA loans are a great option. To qualify, they would need to have stable income and the lender would need to verify some alternative credit references such as landlords, utility companies, insurance companies, etc.
What are the general requirements to qualify for an FHA loan?
Qualifying for an FHA loan is much easier than other loans. With very flexible financial requirements, homebuyers can qualify with less than five percent down. To qualify for an FHA loan, the Federal Housing Administration has established the following guidelines:
- Last two years’ income should be the same or increasing
- Chapter 7 Bankruptcies must be at least two years old and Chapter 13
- Bankruptcies do not automatically disqualify a borrower
- Foreclosures must be at least three years old
- Your new mortgage payment should be approximately 30 percent of your gross (before taxes) income
For consumers wanting to purchase a home, FHA loans may be the better option. With flexible credit requirements and a low down payment, many first-time homebuyers or those with less than perfect credit history may greatly benefit by choosing an FHA loan.
With more than 23 years of mortgage and real estate experience, Billy Woolridge manages Embrace Home Loans’ Lynchburg, Va. branch, located at 103A Paulette Circle.
Founded in 1983, Embrace Home Loans is a direct lender for Fannie Mae and Freddie Mac, approved by FHA and VA, and an issuer for Ginnie Mae. Embrace Home Loans has remained a prominent leader in the industry, having helped hundreds of thousands of individuals and their families purchase new homes, lower their monthly payments and consolidate high-interest debt since its inception.
A member of the Mortgage Bankers Association of America (MBA), Embrace Home Loans is an Equal Housing Lender and an accredited business of the Better Business Bureau. Additionally, Embrace Home Loans has been recognized for its excellence in the workplace and devotion to community service through numerous local and national awards, reflecting the lender’s commitment to continued self-improvement. For more information, please visit http://www.embracehomeloans.com.
