If you are in the market for a house you have undoubtedly heard the term FHA loan thrown around. You may be wondering just what is an FHA loan and how can I apply for one?
FHA stands for the Federal Housing Administration and was established to help those who have less than perfect credit and not much of a down payment realize the dream of homeownership. The FHA does not lend money but rather insures the loan that you get through a traditional lender. The lender may actually insist that you apply for FHA insurance. When you get FHA insurance you receive two huge benefits. First, you will have an FHA inspector give a careful appraisal of the home, and second you will likely receive a lower interest rate from the lender as opposed to not having the FHA insurance. Of course, you will pay for the insurance, but it could be worth it in the long run.
There are many advantages to obtaining an FHA loan, here are just a few:
• You don’t have to have a lot of money to put down.
• You can have less than perfect credit.
• You can keep your monthly payments as low as possible.
• FHA insurance helps you get the loan approved.
How do you go about getting an FHA loan?
The process for obtaining an FHA loan is as follows:
First contact a number of different mortgage companies and ask them if they are FHA approved. Because the FHA does not give the loan, they also do not set the rates. The rates are set by the lender, and because of this fact it is to your advantage to shop around for the best rate possible.
Find out what the specific requirements are in obtaining the loan and make sure you will qualify. A lender will look at things such as income, debt-to-income ratio, past payments, and of course your credit score.
Fill out all the paperwork and the loan application.
Be prepared to pay three to five percent down on the loan, and also keep in mind the closing costs that can be around three percent.
Know that you will have to get mortgage insurance because your down payment is so low. This is paid up front but can usually be rolled into your mortgage payments.
Make your mortgage payments on time and enjoy your new home.
Buying a new home is a big step for anyone. Getting the best rate is very important, as you could be stuck with that rate for some time. Because of that fact alone, an FHA loan is the perfect solution. Because the government will back the loan, the percentage will be very competitive even if you have less than perfect credit and not a lot of money to put down, because the lender is covered should something go wrong and you default on your loan. This makes the lender more eager to lend the money. Remember, not all lenders are FHA approved, so be sure to ask any lender you consider if they are before you proceed with them.
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