A FHA (Federal Housing Administration) loan is especially suitable for first-time home buyers. The U.S. Department of Housing and Urban Development (HUD) acquires FHA-insured homes which have been foreclosed. HUD homes are made available for sale through websites run by management companies contracted by HUD. Real estate agents who are registered with HUD can present offers on behalf of their clients. The agent’s commission is paid by HUD.
HUD homes are sold on an ‘as is’ basis with no warranty. Since HUD does not take responsibility for any repairs, it is important to have the home inspected prior to making the offer. The down payment for FHA loans is only 3.5%, which is significantly lower than the 20% paid for conventional loans. This down payment can come from own savings, family members, employers or charity organizations. Closing costs for FHA loans are also significantly lower than conventional mortgages. An exception to the 3.5% down payment is the HUD $100 down payment initiative. Buyers can now purchase a HUD foreclosed home with only $100 down payment.
FHA has designed various mortgage loans for the public. Depending on an individual’s ability, one can select either an FHA fixed rate mortgage loan or FHA adjustable rate mortgage loan. There are also other special loans like the graduated payment mortgage loan, energy efficient loans, and other loans for other different needs. However, one of the most popular FHA loan programs is the FHA 203K Mortgage. This mortgage enables individuals to acquire financing to renovate their present homes. In addition, the FHA 203K mortgage can also be used to purchase and rehabilitate a house in a different place. Once the buyer decides which FHA mortgage suits them, they can go ahead to apply for the loan. Professional advice for choosing an appropriate loan can be provided by a mortgage loan broker.
Despite the friendly terms of FHA mortgage loans, individuals have to fulfill certain FHA mortgage guidelines. These requirements are in accordance to federal guidelines. To get an FHA loan, one must have been in stable employment, if possible with the same employer, for two years. The borrower should have a minimum credit score of 580, and a debt-to-income ratio of less than 41%. Monthly payments should not exceed 30% of the borrower’s salary. FHA will allow individuals to purchase a home three years after a foreclosure, and two years after a bankruptcy.
Since FHA loans are insured by the federal government, they come with competitive interest rates and lenders are likely to give friendly terms that will simplify the process of getting a loan. Even with less-than-perfect credit, FHA loans are easier to obtain than conventional mortgage. In particularly designated areas, K-12 teachers, law enforcement officers, emergency medical technicians and fire fighters can buy a home at price 50% less than the listed price. In addition, evacuees from hurricanes Rita, Katrina or Wilma can buy a HUD home at a discounted rate.