The FHA was founded in 1934 and has given over 35 million loans, more than any other organization existing today. But you should understand that the FHA doesn’t actually give funding, it simply insures loans. FHA makes it safer for lenders to grant loans because they know that the FHA will pay off whatever is left should you default.
In 2006, President Bush was able to convince Congress to pass a modernization proposal for the FHA that made it possible for families in need to purchase homes. At the time, the FHA mortgage rate was only 5.5 percent. (Here’s a quick aside is for those looking to compare mortgage loan rates. FHA mortgage rates in today’s market dictate that on a 30 year fixed loan at 6%, you will have to pay 1.875 points. You will only have 1.25 points for a 15-year fixed loan, but the interest rate will also be 6 percent.) An FHA loan, if you are a borrower, could be your best option, for a couple of reasons. To start with, you don’t need immaculate credit to get a loan. Lenders are now much more strict about who they lend to, thanks to the sub-prime lending mess. Average and even above average credit just won’t be enough to get a loan now. However, you could still get an FHA loan because other things are considered, like income and debt-to-income ratios.
Bankruptcy can be one other thing that impairs people. People with previous bankruptcy can still be considered for FHA loans, after other things are also considered. If you are really concerned about whether you will get financed or not, and you have poor credit or a bankruptcy on record, then you need to get debt consolidation and/or get a debt management plan. Often they can help people immediately improve their credit, as well as help make sure that the correct steps and measures are taken to lower debt-to-income ratios.
Usually, a much lower than average down payment is required for an FHA loan. This can also be a huge perk for some borrowers. When a larger down payment is possible, it will often make more sense to use the remaining money from the down payment as capital investment to help it grow over time.
The FHA is designed to help people, who are deserving and responsible, buy their own homes. This is one of those U.S. government programs that actually does what it’s intended to do.
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