The Federal Housing Administration (FHA) backs mortgages so that families with low to moderate incomes can buy their own home. With help from the government, families can buy a home for less money up front. But there are some things that can't be done with this programme.
Section 203 of the National Housing Act (b)
Families don't get mortgage loans from the FHA. Instead, they get mortgage insurance. But this programme can save thousands of dollars on the cost of a home loan. The programme also encourages lenders to give mortgages to people who might just miss the underwriting requirements. For example, FHA loans have lower down payment requirements.
With the FHA's Section 203(b) programme, a buyer can buy a new or used home with one to four units. But the person who buys the house has to live there.
FHA Benefits
Some people can get a conventional loan with lower interest rates with an FHA mortgage instead of a sub-prime loan with higher rates. This can save you a lot of money in interest fees.
The down payments that are needed are also less. A buyer can put as little as 3 percent down instead of the usual 10 percent. The closing costs can also be added to the mortgage. This makes buying a home cheaper up front.
The FHA also puts limits on how much the borrower can be charged for fees. For instance, the loan origination fee can't be more than 1% of the amount of the mortgage.
Drawbacks
FHA loans do have some problems, and not everyone can get one. For example, the FHA sets limits on loan amounts to make sure that the programme helps families with low to moderate incomes. With these loan limits, you may find that you need to apply for a regular or jumbo loan to buy your home.
You must also live in the house as your main home. If you want to buy a second home or invest in real estate, you will need to find other ways to pay for it.
How to Get an FHA Mortgage
FHA-backed mortgages are given out by banks that have been approved. Many lenders today are approved, which is a good thing. You should compare the rates of different lending companies for any kind of loan. Even if an institution is approved by the FHA, that doesn't mean they have the lowest rates.
You can easily find rates and terms online by searching different sites or using a mortgage broker site. You can find out about rates without hurting your credit score if you get quotes.
