An FHA financed loan is a US Federal Housing Administration insured mortgage loan that is offered by an FHA approved lender. FHA financed loans are also a form of federal financial assistance. This means that you can borrow money from the federal government to buy a new home or refinance your existing home without having to pay for it out of pocket. The federal housing administration insures the loan, which means if for any reason the loan cannot be paid out of pocket, the government will foot the difference.
There are two types of FHA loans. There are the conventional single-family FHA loan and the multifamily FHA loan. For people who qualify for the single-family FHA loan, this loan is ideal because there are no credit requirements. This means that anyone can apply for and receive an FHA loan. You do not need to have good credit to get this type of FHA financing. The only requirement is that you have to own a home that is FHA approved.
The multifamily FHA financing has a higher qualification criteria than the single-family FHA. This means that it also requires more collateral and higher down payments. The buyers in the multifamily FHA financing are usually people who own multiple units within a building. They can use the funds to purchase a single unit but will still have to pay for the financing. Buyers in the traditional financing need not pay for the entire amount until the house is sold.
The interest rate for a FHA loan is normally low, and for that reason many borrowers choose this type of financing. The government subsidizes the interest rate so that borrowers do not have to pay the full face value of the loan amount when the borrower resells the property. This allows the borrower to get a lower interest rate and makes it easier to repay the loan. In return the government takes a tiny fee that it then distributes to all the other lenders involved in the program. This means that the FHA loans have lower closing costs than the traditional loans.
When an FHA mortgage is insured by the Department of Housing and Urban Development (HUD) the lender must offer the borrower’s a certain down payment. If the borrower does not have enough money to make the down payment the lender will require the borrower to pay a higher down payment. If the borrower cannot afford the higher down-payment then the conventional financing would be more suitable. FHA mortgages come with a lower down-payment requirement because of the government subsidies. Even though the interest rates are slightly higher on FHA loans, the payment terms are better, which makes them appealing to borrowers who would not otherwise be able to buy a house.
If you want a house with lower monthly mortgage insurance premiums then you should consider using an FHA loan. With a conventional loan you will need to build up some equity over time which limits how much you can borrow but an FHA loan requires no equity. This means that even if your credit score is poor you will still qualify for an FHA loan. Another advantage of an FHA loan is that your credit score will not affect the approval of the loan.
Another benefit of an FHA loan is that there are few restrictions. Unlike conventional loans the U.S. Department of Housing and Urban Development does not require borrowers to have perfect credit. Borrowers can obtain funds even if their credit score is poor. To obtain funds a borrower does not even need to have a good credit score as only a 20 percent down payment is required on most FHA loans.
Since FHA loans are backed by HUD, they are less expensive to qualify for. Because there are fewer qualifications for these loans, you will have a better chance of getting approved and will have a better interest rate. You may also qualify to get approved for lower monthly payments. Since there are so many benefits and lower costs you will want to consider applying for an FHA loan if you are in need of instant cash.