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FHA Loan - What You Need to Know

Type of FHA Loans

FHA Loan

FHA insured house or home loan is targeted to the lower income, little savings, first time buyers of home loan properties, and provide low down payment and with credit protection to lenders. FHA loans enable to buy properties which the buyer would have been able to afford it otherwise.

To mitigate the risk to the lender, that accompanies lower down payment, the buyer of the house is required to pay double, or two part insurance. One is a bulk, onetime payment, while the other is a monthly premium payment. It primarily supports people who have difficulty in affording a conventional down payment and it came into high importance in covid 19 times or recessional periods. The scheme also allows loans to people with low credit scores, which bars them from accessing other loans.

In Short, an FHA loan

  • Is insured by the Federal Government
  • It is for those who find it difficult to obtain loan from other sources as private lenders
  • Since the loans carry high risk, the buyers must pay higher interest rates, along with mortgage premium

Bank and other lenders have no problem disbursing these loans, as they are insured. In fact, it is not a loan against property, but a loan against FHA guarantee insurance. Hence they are also called FHA insured loans.

First time home buyers tend to find these loans most affordable and convenient.

FHA insured loans have proved to be a big boon for people who have less credit scores, but still need a place to live as their home. For example, a credit score of 580 or above, one can get up to 96.5% loan of the value of the property he intends to buy, at an interest rate of just 3.5% p.a.

Score below 580? No problem, just make a down payment of 10%, and you can still avail the loan. Moreover, this 10% can come from your savings, or from a friend or relative as a gift, or even as a grant for down payment.

Of course, you must have your social security number, must reside lawfully in the United States of America, and be a legal age to avail loans, to be eligible for these fha insured loans. Proof of steady employment and sufficient income as per bank norms to service your EMIs must also be there.

The different types of FHA loans:

Traditional: This is a traditional mortgage type, a loan against property.

Home equity conversion mortgage: A reverse mortgage loan, applicable to citizens over 62 years age, owning a property, so that they can have cash in exchange of their home equity.

Mortgage program 203(k): A mortgage loan with extras for additional work, like repairs, home improvement etc.

Mortgage program, energy efficient: Specifically built so that buyers can replace, install energy efficient, green house hold appliances and products, with extra amounts of this loan.

Graduated Mortgage program (Section 245 a) Loan: This loan has a typical structure of keeping a low initial monthly payment, which gradually increases over the years, properly scheduled. This is built for people who feel that their financial condition will improve over time, and they will be able to pay more in future years.

The maximum FHA loan amount, or FHA loan amount limits:

The following table, data from US department of housing and urban development, gives the maximum fha loan amount limits, by cost and area, in the year 2022.

2022 FHA Loan Limits
One-Unit $420,680 $970,800 $1,456,200
Two-Unit $538,650 $1,243,050 $1,864,575
Three-Unit $651,050 $1,502,475 $2,253,700
Four-Unit $809,150 $1,867,275 $2,800,900

While it is quite clear that we know about the advantages of fha loans in terms of low down payment, loans to even people with low credit scores, and obtaining of property, which is otherwise not possible, there are some disadvantages are as well, which actually are not disadvantages, but reinforce the purpose of this loan, which is, loans for absolutely the persons who need it most, who are not financially that strong, and for those who are yet to have a home.

With FHA loans:

Still, considering their purpose, they are one of the most successful financial products, in the history of United States.

FHA Home Loan

How does one apply for fha loans?

Just approach the bank or lender you are comfortable with, chances are that they are already approved to disburse FHA loans. Just to be sure, you can use the Google search box below with your lender name and fha, to see if they are fha approved: Check with multiple lenders.

You can also choose to get yourself a pre approval done, so that you are better equipped to search for your property. Remember to get pre approved from multiple lenders, so that you can compare offers, and be more sure, when buying your property. Do check the EMI amounts, and make sure that you will be able to service them, before you settle for the loan.

FHA loan foreclosure waiting period

According to CAIVRS, which is a Government database that tracks credit delinquencies and default on federal debts, the waiting period is determined by CAIVRS, and not the date of foreclosure or resale. That said, the normal FHA loan foreclosure waiting period is three years by FHA. The date of waiting period being over gets tricky as the mortgage insurance claim is only paid after the foreclosure lenders submit their papers of foreclosure, and the waiting period begins only after the insurance claim is paid. Moreover, CAIVRS accessibility is not direct to consumers, and you will need to consult an fha approved bank or lender, to find exact date of your FHA loan foreclosure waiting period getting over.

How to close a FHA loan before time:

Just take a normal loan, which will pay off the fha loan in full, and convert your loan to a regular housing loan.

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