By Mia I Phillips
The Federal Housing Administration or FHA manages the home loan system at the national level, being accessible to Americans from all states. With an FHA there are insurances against default, which means that in case the borrower does not have the possibility to pay for the mortgage, FHA will cover the rate.
This allows people to lend larger sums of money because with the FHA guarantee comes a higher flexibility on the part of the borrowers. Although more people can qualify for an FHA home loan than for a regular home loan, not everybody is eligible.
While in first-time-home-buyer programs you will have a whole series of limitations, income is not an issue with an FHA loan. The amount you can borrow depends on the income and the home prices in your region.
You can check the general home costs for your neighborhood on the Internet on a website like HUD.com. Then, the credit report should be at least average and the debt to income ratios must be satisfactory. If you have a decent credit report you can have access to an FHA home loan.
The down-payment with an FHA home loan can be as small as 3%, plus there is leniency during financial difficulties, and no prepayment penalties. Insurance premiums are a must with such a loan: you'll first have to pay a 1.5% premium, continuing with monthly fees.
The collected insurance premiums may actually work for the payment of the mortgage in case you default on the FHA home loan. The solutions available with the Federal Housing Administration are not suitable for everybody, and there are limitations to the system.
An FHA home loan will not work too well for someone who needs a large sum of money. Plus, the the ongoing fees and the upfront mortgage insurance premiums can prove more expensive than the private mortgage insurance.
Most of the time, home buyers with excellent credits use more competitive offers in the private sector and do not apply for an FHA home. The way a borrower addresses home purchases varies from case to case, and this is also obvious in the evolution and the policies of the lending companies. Moreover, mortgages have received a heavy blow from the current financial crisis.
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