FHA Loan info

If you have no idea what an FHA loan is then keep reading. As of this writing they are one of the most popular loan products homebuyers (especially 1st time buyers) are using to buy homes...

...they are basically loans that are "insured" by the FHA (Federal Housing Administration) and offer some really great benefits to borrowers. Some of these benefits include low down payments requirements, more liberal credit qualification criteria, and no prepayment penalty.

...for example, people who don't have the required 20% down payment required by most lenders and are able to use an FHA loan are currently only required to put down a 3.5% down payment. That's A LOT less money out of pocket and can make the dream of homeownership that much more possible for the majority of people who aren;t able to come up with a massive 20% down payment.

...Not to mention with more relaxed credit guidelines if someone didn't have good enough credit to finance a conventional loan, even though they had the 20% needed, they might find that FHA would still be able to make is possible to get the loan they need to buy a home.

...Now just to be clear FHA is NOT a bank or lender. They are a government entity that "insures" the loan that a regular bank or lender will make to the borrower. You might be wondering what the difference if the same bank is lending the money to the same people. Let me explain.

...The difference is that the bank lending the money, with FHA insuring the loan, knows that even if the borrower defaults on the loan they can be reimbursed for their losses by FHA. They may not get 100% of the money they lose, but it's like their insurance policy. Speakiing of insurance policies FHA loan requirements will also require borrowers to pay for MI (mortgage insurance) with their loan.

...FHA needs to hedge their losses too so having borrowers pay for MI is a way to help of set the money they could lose for the risk they're taking in the first place. The good news is it's relatively inexpensive and the upfront premium can be financed with the original loan.

If you are one of the many home buyers out there then using an FHA mortgage can be a less expensive way to purchase. These loans can sometimes be a little hard to understand so it's better to know a little about them BEFORE you get too far in the home search. It's really important to be working with a Realtor who understand the guidelines with FHA to help make things transition nicely. I've worked with enough FHA buyers to understand the importance of working with knowledgeable people in this industry to avoid possible issues.

Not doing this WILL cost you valuable time, and possibly money, that you may not be able to afford. With an FHA knowledgeable Realtor you have someone there to help you through the loan process. They can take steps to smooth out rough edges that might otherwise cause problems. As a buyer you really need to know some of these things too, but it's still more important that the agent knows the difference between conventional loans and FHA loans|mortgages.If your agent isn't familiar with FHA then they may assume they have similar loan requirements as conventional loans which may end up ruining your home purchase.

For instance, when you find a home and get it appraised FHA makes sure it fits their definition of being in "habitable" condition. To be considered habitable it needs to have a present and working refrigerator and stove on the premises in order to pass. So you could have a picture perfect home w/ No appliances and that could kill your deal! Having an agent who knows FHA guidelines for your lender can help you deal with issues like this BEFORE they come up and cost you money.

Bottom line is, if you're not sure you're working with a Realtor who knows FHA loans and you're planning to finance with FHA then you could be in trouble, and end up very disappointed. Do yourself a favor and work with one who knows this loan product. With all the bank owned properties and foreclosures that will probably NOT qualify for FHA you can waste a ton of time if your agent doesn't weed them out up front. If you've already got an Realtor ask them if they have helped other buyers with FHA already to make sure you don't end up as the guinea pig.

About the Author

Dustin Miller is a Realtor experienced in working with FHA buyers and has also answered other questions regarding FHA loans here: http://www.fhaloananswers.com or here http://www.dustinrm.com