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FHA loans and what they mean to you

A basic humanitarian principal is that everyone should have a home, food and clothes. In the US not everyone owns a home but there are many programs that make it possible for anyone to own a home. The FHA program is a good example of one such program.

The FHA, or Federal Housing Administration, is responsible for ensuring that anyone, regardless of his or her current financial situation, can obtain a home. The FHA accomplishes this by guaranteeing the loans, not lending money to the buyer. By providing a guarantee, prospective homeowners can more easily obtain a mortgage and do not need expensive private mortgage insurance. The process used is very similar to the process for VA loans.

The FHA program is more accessible to people because of its less stringent criteria for guaranteeing loans. The main criteria for a FHA loan are the amount of the down payment that you have accumulated. The minimum requirement for a FHA loan is 3% of the value of the home and the 3% may be a gift from a relative, nonprofit or government agency. This allows many more people to qualify for a home loan.

While it is easier to get a FHA loan guarantee, the requirements of the home may limit your options to some degree. For starters there are lending limits that are geographical. A $250,000 home may be financial in a larger city center but wouldn’t be reasonable in a small community. This is due to the average value of homes in that area. FHA is not there to provide mansions to those willing to live in small towns.

Another thing to consider this the condition of the home. In order to be eligible for FHA approval, the home must meet certain average standards that can vary depending upon the appraiser. The general idea is that the home must be reasonably new and in good condition with no deferred repairs. FHA does not want to be in a situation where you may default on a loan because you could not afford the repairs on your home or have little value left in the home if you default due to the lack of repairs.

The key to this is the definition of average. Under the old FHA loan rules, there was a strict standard that had to be adhered to or the home would not qualify for FHA approval. This is no longer true and the definition of average is now based upon the appraiser. In some cases a home has needed screen doors and shutters to be added and in other cases only blocks where needed under the down spouts from the eaves to make it average. Generally the faults found will be minor and will not derail the closing proceedings.

Many people could not qualify for a mortgage but with the help of FHA this is no longer true. FHA home owning is an excellent way to move ahead and get a home but it does require a little more work than a normal mortgage would. You must have a minimal down payment, your home must be in an average state of repair as determined by an inspector and the price must be reasonable for that area. If you ensure that all these factors come together you will soon be in your new home.