What is the FHA?

Posted on March 13 By MLP Lending Guide

The FHA, or Federal Housing Administration, is a government program that was started during the depression to help affected citizens buy houses who might not have been otherwise able to afford them. Since the 1960s, however, the FHA's main purpose has been securing housing loans for low and moderate income individuals with bad credit or an inability to make a down payment. The FHA does this by insuring the lenders who provide the money to the borrower, so that in the event the borrower cannot make the payments, the FHA will cover the loss. It should be pointed out that the Federal Housing Administration is the only government agency that is completely financially self-sufficient: it operates at no cost to taxpayers. Though the FHA has undoubtedly provided thousands of families with housing, the FHA market niche is decreasing.

FHA mortgage loans aren't for everybody. Though the standards of obtaining an FHA mortgage are lower than mortgages in the prime market, there are still requirements. For one, an individual taking out an FHA mortgage must be able to put down 3% of the loan in cash. Furthermore, the borrower's credit rating can be blemished and imperfect, but the borrower cannot have had a foreclosure in the last 3 years. As for loan limits, the FHA rates vary widely around the United States, so it's best to check with your local lenders. Some have claimed that the low FHA loan limits have caused their decline in the last decade, as the FHA loan limits are lower than traditional Freddie Mac or Fannie Mae loans.

If you can afford to make a 3% down payment in cash, and fit the rest of the requirements, then there is only one more thing to consider: would another type of mortgage suit your needs better? The decline of FHA loans have been partially blamed on option adjustable rate mortgages and interest-only mortgages. Check out all of your options in order to decide what would work best for you. The FHA does do a credit check, obviously, so be prepared to deal with this process when applying for an FHA mortgage loan.

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