The FHA home loans program has been around since 1934. The program was designed by the National Housing Act to help more Americans achieve the goal of home ownership and increase home construction around the time of the great depression. FHA stands for Federal Housing Administration and is now part of HUD. The FHA loan program does not actually provide the loan but rather insures the loan to lenders against defaults by the borrower. By having the government back these loans lenders are able to offer lower interest rates, lower closing costs, lower down payments and easier credit qualifications than a conventional loan. Since the loan is Government backed it provides the consumer with some very nice options.
This is a great program for first time home buyers or those who cannot afford a traditional down payment that a conventional loan requires. For example you down payment can be as low as 3.5% of the purchase price. And a majority of your closing costs can be rolled into the loan. The down sides to FHA loans are the borrower must pay MIP which stands for Mortgage Insurance Premium, and the loans require more documentation and generally take longer to get approved.
FHA home Loans have the traditional 30 year fixed rate and a 15 year fixed rate just like conventional loans. They also insure ARM loans. The amount you can borrow is limited but it’s usually satisfactory for a starter home. FHA home mortgages can be used for a variety of living options like single family homes condominiums and townhouses. The FHA even has options for manufactured and mobile homes. For new homes under construction the FHA requires special paperwork before the construction and certain inspections while construction is taking place to make sure everything is up to snuff. If you want to fix up a home the FHA has an option that lets you purchase a home fix it up and include all the costs in the mortgage only giving one loan.
Note that FHA loans may take longer than a conventional loan to get approved. FHA loans have strict requirements and more documentation. The appraisal on the home must be made by an FHA staff appraiser or an FHA approved independent appraiser. If the appraiser determines that repairs are required the property must be re inspected after the repairs have been made before the loan can be approved. Be prepared for a couple of hiccups here and there. This is why it is very important to supply as much documentation up front so your mortgage approval process can go smoothly.
FHA loans are a great option and should be considered especially if you do not have a lot for a down payment. Always consult with a mortgage professional to determine what mortgage product is going to be best for your situation. For more details on the FHA Loan program visit HUD.GOV