The advantages of an FHA loan outweigh a conventional loan for some homebuyers. While the Federal Housing Administration (FHA) doesn't actually give out loans, it does insure loans to certain borrowers to instill confidence in lenders who might otherwise deny a loan application. Learn some of the advantages of an FHA loan, and see if one is right for you.
FHA Versus Conventional
The FHA-insured loans allow lenders to grant loans to people who may not meet the strict criteria of a conventional loan. FHA loans look favorably on borrowers who are first-time home buyers, who have fair to good credit, who don't have a large down payment and who may even have some credit problems in the past. FHA-backed loans don't have as many fees for closing costs as other conventional loans, either. However, the FHA does automatically structure in a mortgage insurance payment, usually around 1 percent of the loan amount, which the organization uses to pay lenders for any losses when a borrower does default.
An FHA-insured loan differs from a conventional loan in that the down payment requirements are lower. The loan can even be structured so that the down payment for the property can be gifted from a friend or family member, or even an agency or non-profit organization.
FHA Streamline Refinance
Another advantage of an FHA-insured loan is the ability of the borrower to let streamlined FHA loans refinance an existing FHA loan. A streamlined refinance allows the borrower to take advantage of drops in the fixed interest rate, and refinance the existing loan for the lower interest rate. There is generally no new credit check or appraisal of the home. However, the refinance must be shown to lower the monthly payment and in order to qualify, the loan cannot already be in default. The refinance also doesn't allow any amount in excess of the original loan-in other words, the homeowner won't be allowed to cash out any equity from the home like a home equity loan.
The Federal Housing Authority is a government agency created by congress in 1934 as a means of providing better housing to more Americans. So what exactly is an FHA home loan and who qualifies?
An FHA loan is a federally insured loan made by the Federal Housing Administration, which has been insuring mortgages since 1934. FHA loans are very good options for specific borrowers.