Today's topic is FHA loans. This is the loan most first time buyers use. Read further to get an idea how they work?
What exactly is an FHA loan? This is a loan backed or insured by the Federal Housing Authority. This means that your local bank or loan broker will write your loan, but FHA promises to back the loan up if you default or don't pay your monthly house payment.
Sounds good for the Lender. Why aren't all loans FHA? FHA has guidelines on the condition of the homes they will insure. They must be ready to live in. Repairs regarding safety and live-in readiness (like a furnace or a bathroom) must be done prior to the home sale closing. If a home is sold not meeting the FHA guidelines, it must be sold under what is called a conventional loan. FHA does its own appraisal and lengthy inspection of all homes it grants loans on. When looking at buying foreclosed homes, often repairs are needed before they can be occupied. These homes would not qualify for a FHA loan. Homes in disrepair are usually sold with conventional loans which are harder to qualify for. Your Realtor should be able to tell if a home will not pass FHA approval.
Why would I, as the buyer, care if my loan was FHA? FHA guidelines for approving buyers are easier. As an FHA buyer, your credit score does not alone drive your ability to get a loan. If you've had some credit problems in the past, often you can still qualify for a FHA loan. And, FHA only requires you to put down 3% of the sales price for a down payment - most conventional loans require at least 5% down. So in short, you need less money and your credit doesn't have to be perfect. You can also receive help from the seller in paying your loan's closing costs.
How do I go about getting an FHA loan? Most banks and loan companies can help you with an FHA loan. They will explain to you the guidelines and can "pre-approve" you. They will tell you how much you can realistically afford to spend on a home and estimate what your house payment will be. This is the first step in house hunting. Without knowing how much you can spend or if you can even get the money, you could be wasting your time. If you need a referral for a lender or have any questions, check my website: justcalljan.com.