The FHA was established in 1934 and has since provided loans to over 35 million borrowers, which is more than any organization. Understand, though, the FHA does not actually fund your loan, it simply insures it. FHA makes it safer for lenders to grant loans because they know that the FHA will pay off whatever is left should you default.
President Bush convinced Congress in 2006 to pass a proposal to modernize the FHA, which gave deserving families the opportunity to purchase homes. At the time, the FHA mortgage rate was only 5.5 percent. (Here’s a quick aside is for those looking to compare home mortgage rates. In today’s market, current FHA mortgage rates dictate that the interest rate is 6% for a 30 year fixed loan with 1.875 points. You will also get an interest rate of 6 percent for a 15 year fixed loan, but the points will only be 1.25.) An FHA loan, if you are a borrower, could be your best option, for a couple of reasons. First, to qualify for the loan you do not need to have high quality credit. Because of the sub-prime lending problem, many lenders have become far more strict about who they lend to. Simply having average or slightly better than average credit isn’t enough. But, you can often qualify for an FHA loan depending on your income, debt-to-income ratio, and a couple of other factors.
One more thing that can be a problem for people is bankruptcy. As long as there are other favorable factors, FHA loans will still consider individuals who have a previous bankruptcy. If you’re really concerned about whether you can secure financing, and you have bad credit or a bankruptcy on record, then you need to get debt consolidation and/or get a debt management plan. Usually people are able to improve their credit rating, as well as take the right steps to improve their debt-to-income ratio.
FHA mortgages usually don’t require as large a down payment as is required with other loan types. This can also be a huge perk for some borrowers. When a larger down payment is possible, it will often make more sense to use the remaining money from the down payment as capital investment to help it grow over time.
FHA loans are meant to help responsible and deserving individuals purchase their very own homes. This is one of those U.S. government programs that actually does what it’s intended to do.
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