FHA Mortgage Loans Can Work For You

Home ownership is the American dream. However, for years, owning a home remained out of the reach of many. The Department Of Housing and Urban Development was formed in 1965 to address this problem. A part of HUD was the Federal Housing Administration (FHA). Thus was born FHA mortgage loans.

There are many mortgage lenders out there. During a period of time they tended to write mortgages for almost anyone who applied. Those days have now ended. Times now are returning to what they had been historically what they were at the time HUD and FHA were created. Lenders are once again requiring the traditional 20% down payment and insisting upon good credit for their borrowers.

These requirements had historically kept many first time home buyers out of the home market. Without established credit or the sufficient down payment they were unable to secure a loan. Without a mortgage loan it is impossible to become a home owner. FHA was therefore created in order to fill this void. Its mission was to spur and encourage home ownership in America.

Instead of the normal 20%, an FHA loan allows for only 3% down payment. This opens the door to home ownership to many who are just starting out and haven't yet been able to earn enough to save up twenty percent of the price of a home on today's market. This lowered requirement brought many new buyers into the market thus serving to create additional demand helping home prices.

When you get a mortgage there are one time costs which are due at closing. With most conventional mortgages it is the borrower who pays these. This is not the case with FHA loans. The lender absorbs some of these costs instead of the borrower with an FHA loan. The portion not paid by the lender is then tacked onto the loan as opposed to being payable in full at closing.

This ability to tack closing costs onto the loan balance greatly reduces the out of pocket expense on the part of the borrower at closing. This often can be the difference between being able to afford to buy a home or not. The next facet where FHA loans differ from regular mortgages is the credit score requirements are lower.

Many without good credit are otherwise shut out of the home market. An FHA loan has lower credit requirements. You can even have filed for bankruptcy in the past so long as it was at least two years and you have retained good credit since. If you previously suffered through a foreclosure, then you must wait three years until after the foreclosure was finalized in order to be eligible for an FHA loan.

For all of these reasons, FHA mortgage loans can be a godsend for those just starting out in life or those recovering from an unfortunate financial situation. There are limitations to FHA loans. The most salient is a limit on the value of the home you are purchasing. These limits recently changed and are subject to further change. There are many free resources online to track current FHA regulations. Explore whether you qualify for an FHA loan. It can turn you from a renter into a homeowner.