An Introduction to FHA Loans

Are Federal Housing Administration Mortgages Worth Looking at?

Oct 20, 2009 Carol Finch

For those that find it hard to get standard mortgages FHA loans may offer a low cost & more accessible solution for both first time buyers & those looking at refinancing.

It can be hard to get on the mortgage ladder for some consumers. They may not have the cash to finance their first home loan and may have less than perfect credit. FHA loans may be a solution worth considering.

What are FHA loans?

An FHA mortgage is backed by the government's Federal Housing Administration. This department does not give out loans as such but insures people who qualify for funding to make it easier for them to raise the money they need to buy a property.

The actual mortgages here will be given out by standard lenders. These loans are easier to get for many people who may be seen as high risks or who are finding it hard to get the money together to buy a property via a standard route. Having FHA insurance backing means that they are less of a risk to a lender.

Who Takes out FHA Mortgages?

These loans can suit a variety of people in different situations. For example, they may be suitable for individuals that:

Are buying their first home.
Don't have the cash to make a standard downpayment.
Can't cover traditional closing expenses.
Have credit problems.
Need a low cost payment solution.
Want to refinance to a lower cost solution.

These situations can make it difficult to get a standard mortgage at reasonable rates. FHA loans may work out to be a more cost effective solution for some.

The Advantages of FHA Loans

Federally backed loans come with a range of advantages to qualifying consumers. These include:

They may be more accessible than standard mortgages.
The fact that they have FHA backing means that they can offer more competitive interest rates that the consumer may not have been given on their own merits.
They have lower down payment requirements (around 3%) than other home loans and the individual can raise this finance in more flexible ways.
They are not based on credit scoring in the same way as standard products making it easier for people with credit problems to get approval.
They can be used for refinancing as well as a new purchase.

The loans on offer here are funded by lenders that take part in the FHA program. Their rates and deals may, therefore, vary and consumers may want to take time to compare their options and perhaps to use a mortgage calculator and online comparison service to make sure they pick the best product for their needs. Although these home loans may be cheaper solutions for some, they may not suit every individual.

Consumers will also need to meet certain qualifying criteria to be able to apply for FHA loans. Where they live will play a part in how much they can borrow as well. These mortgage solutions are capped at different levels across the country so this may need to be looked into before completing an application.

Source: www.hud.gov

The copyright of the article An Introduction to FHA Loans in Mortgages/Loans is owned by Carol Finch. Permission to republish An Introduction to FHA Loans in print or online must be granted by the author in writing.

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