Why Ask For an FHA Loan?

There are lots of reasons to ask your lender for an FHA loan instead of taking a conventional mortgage loan. Why not take advantage of the many benefits and protections that come only with a FHA:

• Easier to Qualify – Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so it’s easier for you to qualify.

• Less than Perfect Credit – Even if you have had credit problems, such as bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.

• Low Down-Payment – They have a low 3.5% down-payment, and that money can come from a family member or employer. Other loans don’t allow this.

• Costs Less – Many times, FHA loans have competitive interest rates because the loans are insured by the Federal Government. Always compare an FHA with other loan types.

What is an FHA Loan?

An FHA loan is a loan insured against default by the FHA. In other words, The FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. Because of this guarantee, lenders are willing to make large mortgage loans.

Who Can Get an FHA Loan?

Almost anybody can get an FHA loan. There are no income limits like you may find with first time home buyer programs. However, there are limits on how much you can borrow. In general, you’re limited to relatively small mortgage loans relative to home prices in your area. To find the limits in your region, visit Hud’s Website.

To qualify for an FHA loan, you’ll need to have a reasonable debt to income ratio. In general, you have to be better than 29/41. In addition, you have to have decent credit. You don’t need wonderful credit to get an FHA loan; it just needs to be decent.

FHA loans are not for everyone. Nevertheless, they are a great help to some borrowers. FHA loans allow people to buy a home with a down-payment as small as 3.5%. Other loans might not allow such a low down-payment.

FHA loans offer a few other bells and whistles:

• Easier to use gifts for down-payments and closing costs
• No prepayment penalty (a big plus for subprime borrowers)
• An FHA loan may be assumable
• Possible leniency during financial hard times

How Do FHA Loans Work?

The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.5%. They also pay a small ongoing fee with each monthly statement. If the borrower defaults on an FHA loan, the FHA uses the collected insurance premiums to pay off the mortgage.

Why Not Use an FHA Loan?

You may find that FHA loans are not for you. An FHA loan may not offer enough money if you need a large mortgage loan greater than $271,000. In addition, there is an upfront mortgage insurance premium (and ongoing premiums).

If you would like to find out if an FHA is right for you, call Linda Jankowski at Patriot Mortgage Services Inc. at 920-385-7364 or see their website at http://www.patriotms.com. Patriot has offices in Green Bay, Appleton, and Oshkosh, Wisconsin. If an FHA loan is not right for you, maybe a VA, USDA Rural, or a WHEDA loan is the product for you.