FHA loans

The federal government created the Federal Housing Administration (FHA) to help more people afford mortgages. If you have not been able to obtain financing for a conventional loan, a FHA loan might be the appropriate solution.

Essentially, the FHA’s function is to insure the mortgages of high-risk borrowers. They do not actually fund mortgages. Instead, they help to make sure that mortgage lenders will receive their money, even if you default on your loan. The cost of this insurance is included in the mortgage; it is not paid for by the government.

As a result, high-risk borrowers can obtain mortgages for which they wouldn’t otherwise be eligible. In other words, they don’t require the same financial resources as other borrowers.

Many people who turn to FHA loans don’t have the money to cover a traditional down payment, which is usually fifteen-percent of the price of the house. FHA loans require a much lower down payment; in fact, some are as low as three percent. In this way, people who are just starting out can get some relief with the considerable costs that accumulate before the monthly mortgage payments ever begin. Additionally, the program can help low-income borrowers obtain interest rates that are lower than the market rate.

In order to obtain a FHA loan, you will have to prove that you can repay it. You will also have to prove that you intend to repay it. (In this way, FHA loan applications are not much different from those of conventional loans.) Proving you can repay it will involve sharing information about your income and employment situation. Your credit history will largely determine the lender’s judgment of your intention to repay.