Providing more loans than any other organization, the FHA was established in 1934 and has given loans to over 35 million borrowers. Just to be clear, the FHA insures your loan, it does not fund 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.
Giving needy families the opportunity to purchase homes, President Bush convinced Congress in 2006 to pass a proposal for the FHA to modernize they way they function and approve loans. When the proposal was passed, the FHA mortgage was just 5.5 percent. (Here’s a quick peek at the rates for those looking to compare home mortgage loans. FHA mortgage rates in today’s market dictate that on a 30-year fixed loan at 6%, you will have to pay 1.875 points. You will only have 1.25 points for a 15-year fixed loan, but the interest rate will also be 6 percent.) As a borrower, there are a couple reasons why an FHA loan could be your best option. First of all, you don’t have to have perfect credit to qualify for the loan. Lenders have become far more selective about who they lend to, thanks to the sub-prime loan fallout. It just isn’t good enough to have above average, let alone average, credit. However, you could still get an FHA loan because other things are considered, like income and debt-to-income ratios.
Bankruptcy can also be a factor that holds people back. As long as there are other favorable factors, FHA loans will still consider individuals who have a previous bankruptcy. If you are really concerned about whether you will get financed or not, and you have bad credit or a bankruptcy on record, then you should try debt consolidation services and/or get a debt management program. Often they can help people immediately improve their credit, as well as help make sure that the correct steps and measures are taken to lower debt-to-income ratios.
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. Even for those that have more money to use as a down payment, it can often make more sense to use that money for growth by finding investments that give a good return.
When all is said and done, the FHA is meant to help responsible and deserving people purchase their own homes. This is one government programs that actually works pretty well.