Government-backed loans are available through the FHA (Federal Housing Administration, a section of HUD -- the U.S. Dept. of Housing and Urban Development) to those wanting to buy a home. The FHA home loans help particular groups of people qualify for assistance that they otherwise may not receive. HUD guarantees the loan, which will be made by a regular lender. There are different types of home loans that the FHA will guarantee, and you must meet all qualifications for your particular program. The following steps outline the best road to take in order to receive a loan that is guaranteed by the FHA.
Loan Eligibility. First, you should visit the FHA website (portal.hud.gov) to see if you can qualify for any of the FHA loans they offer. Your credit rating, income-to-debt ratio, and the percent of the home's value to be covered by the down payment are among the criteria considered for qualification. There are three main government home loans available to those looking to purchase a new home:
- A loan for first-time home buyers. You must be buying a home for the first time, meet credit qualifications, and be approved by an FHA lender. Know that government loans for first-time home buyers may have a slightly higher interest rate because these buyers are most likely paying a small down payment.
- A loan for those buying a home that needs repairs. This will pay for both the purchase price and the cost of fixing up the home. The only qualifications are that you meet credit requirements and are approved by an FHA lender.
- A loan for those who want to buy a mobile or manufactured home. Qualifications for obtaining this loan are the same as those for buying a home that needs repairs (above).
- Plus, a loan for veterans. Home loans are available for qualifying veterans, current service persons, certain reservists and certain spouses. These are backed by the Veterans Administration (VA), rather than the FHA. Qualifying is similar to FHA loans and they don't require a down payment. To find out more, visit http://www.benefits.va.gov/homeloans/.
You must fall into one of the above categories to receive a loan to buy a home through the FHA. The FHA also offers assistance for those wanting to upgrade their current home to make it more energy efficient, and they have reverse mortgage loans available to seniors. Neither of these is for those wanting to buy a new home.
Buying a Home. Once you decide what kind of loan you can use and have determined that you meet the qualifications, you can then apply for it. You may need to meet with a HUD-approved housing counselor before or after you apply to help decide which lender is best or if you just need some help and advice during the application process.
- Find a Lender. If you are approved at this stage, you should then find a lender. You must use a lender approved by the FHA in order for the agency to guarantee the loan. The HUD website will help you find an approved lender.
- Apply. Once you find a lender, you will need to apply and qualify through the lender just as you would if you were not going through the FHA. The good news is that you may qualify for a loan that you previously would not have, since the FHA is promising the lender payment if you default.
- Home Shopping. Once you have approval from the lender, you may want to begin shopping for a home, if you have not done so before now. You will be approved for a certain amount, so be sure to know how much you can afford on a monthly basis and stick to your price range.
- Close the Deal. After that, it is just a matter of negotiating a reasonable price with the seller and closing on the property.
With an FHA loan you may need only a small down payment (the minimum starts at 3% for a first-time home buyer), and you also may be able to use the money to pay for all applicable fees, such as closing costs. FHA government home loans may be your only option, but if not, feel free to compare these loans to others from different lenders to make sure you get the best rate and mortgage possible.