While FHA loan company and loans are relatively familiar phrases, especially in the housing market and also the mortgage market, certain people are pretty unaware of what these terms denote and precisely why they should recognize them.
What is FHA?
The most important point of call is what The Federal Housing Administration is all about. To get a full grasp of what FHA is, one need to look back in memory lane circa, 1929. The financial disaster that happened around this period led to many people losing their homes. The crisis rendered it tough for property owners to repay the mortgage loan, that didn’t leave much choice for financial institutions, but to carry the expenses involved with foreclosing the houses.
The crisis also triggered a modification of the banking system in the United States in 1934. This period experienced the creation of a new agency called the Federal Housing Administration typically referred to as the FHA. The most important function of the company was to control the terms, qualifications, and the interest rates on mortgage loans. The agency purchased mortgage loans and consequently insured them, helping banks and other such lending institutions in their mortgage loan overhead.
Having known several things regarding FHA as well as the main rationale why the agency was established, it certainly is worth discussing some of the many perks of loans insured by the Federal Housing Administration, usually referred to as FHA loans. As mentioned previously, FHA loans are not extended directly by the government agency as the FHA only insures the mortgage loans, thus reducing the cost and risk tied to extending such loans. It is worth noting that the FHA loans are unavailable from all conventional financial providers like banks and others. Potential consumers should get their loans through individual companies approved by the administration.
Why are FHA Loans Extremely Popular?
Studies have revealed that some people were hesitant to get FHA mortgage loans because of the option of other allegedly better options supplied by their state. Nevertheless, with one more economic downturn on the horizon, the need for FHA mortgage loans began to go up yet again, and such trend has continued over the years.
FHA loan programs have features which have rendered them one of the most desired home loan programs in the country. Some of the features are mentioned below.
- Among the features of FHA mortgage loans is the low down payment, enabling potential consumers to shell out as little as 3.5 % to get a home loan as high as 96.5 % of the value of the house.
- Another aspect of the loan is that the down payment can come as a gift, being an immense advantage for new home shoppers.
- A fico score is not a serious problem as far as getting an FHA mortgage loan, apart from individuals with terrible credit statuses, which possibly could prevent their chances of getting a mortgage.
- Persons having a previous foreclosure or bankruptcy could qualify for an FHA mortgage.
- Self-employed individuals that have been unable to receive mortgage loans from banks can check with an FHA-approved mortgage company for a mortgage loan. An FHA loan approval could be received just by showing tax returns for the previous two years, a profit and loss statement account, and also the present year balance sheet.
- FHA loans usually have a fixed interest rate. It makes certain individuals know about the monthly mortgage amount because the interest rate is constant throughout the life of the loan, plus homeowners don't have to agonize about fluctuating interest rates.
The interest rates extended by FHA-approved loan companies differ depending on different factors. The difference in interest rate usually differs in the range somewhere between .25 to 1.5 % and may well sometimes be higher. Therefore, it is advisable that prospective homeowners, particularly the first-time home shoppers, choose their mortgage company carefully. It is also practical that applicants visit some lenders and subsequently compare the interest rates offered by every one of them before selecting a lender.
It is also important to note that the failure repay the mortgage amount within a specific period may lead to the loan originator charging an additional interest on the mortgage.