How to use the FHA to get your first home
What are FHA loans? What is the FHA? FHA is an abbreviation for the Federal Housing Authority, which is a national government organization. The purpose of the FHA is to allow more Americans to realize the dream of home ownership, as owning a home is good for the individual, the family, and the society as a whole. Home ownership creates jobs and stable communities.
How does the FHA go about meeting this mission to get more Americans
into their own homes? Through FHA loans.
That is the common terminology used by home realtors and most people, but the terminology can be a little misleading if you are not yet aware of what an FHA loan is. The FHA does not actually lend money to potential homeowners. What FHA loans really are is a type of mortgage protection called mortgage insurance, guaranteeing your ability to reply your mortgage to a lender.
The concept is really a simple one to understand, although some folks are confused about it.
This is how a real estate transaction works:
You, the buyer, find the home of your dreams. You, the buyer, need to borrow money to get the house. You seek out a lender and apply. The lender, whether it is a mortgage company, a bank, or some other lender, decides whether or not to loan you the money. Once a lender agrees to loan you the money, a lump sum of money is transferred to the owner of the house by the lender. Then, you agree to pay X amount of dollars every month until that lump sum (plus taxes, insurance, and interest) are repaid in full. Simple, right?
Yes, really the basic concept is not difficult, although there can certainly be a lot of paperwork and information required along the way.
One of the biggest glitches has often been the lender's reluctance to loan the money without such FHA guarantees. That is where FHA loans come into play. The FHA provides mortgage insurance, and that mortgage insurance protects the lender in case you can't pay back the loan.
Lenders are more eager to lend money when the FHA is protecting them, and that is how the FHA helps people get loans and realize the American dream of home ownership.
If you are a first-time homebuyer with limited credit history or have some credit issues in your past, you can certainly still qualify for FHA loans, and it may be just the thing to get you into that ranch-style dream that is just perfect for you and your growing family.
Not every lending institution works in cooperation with the FHA, however, so it is necessary to find a lender who does so of you are interested in FHA loans.
It is simple to find an FHA Preferred
Lender; you can get your realtor to help you or you can simply go
online to the FHA site and fill out a request. They will send you a
list of lenders via email or regular mail. Usually, FHA loans
require a smaller down payment, can be easier to qualify for, and
have lower interest rates than getting a mortgage another way. If you are going to buy a home, it makes
sense to look into FHA loans as an alternative to other mortgage
options.
More Resources
- Federal Housing Authority
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