The ABC's of FHA Loans
Did you know that the FHA has been around since it was established as part of the National Housing Act of 1934? Yet, there is a mystique that still surrounds the FHA (and FHA loans), even after its many decades of existence.
The letters FHA are an acronym for Federal Housing Administration, a department of HUD, (another acronym that stands for U.S. Department of Housing and Urban Development).
Perhaps the biggest misconception I hear from my potential Borrowers regarding the Federal Housing Administration is that the FHA itself originates loans. It does not.
FHA is chartered to insure the Mortgage Lenders that make the loans. FHA also helps make housing affordable and "financeable" for lower down payment Borrowers (though not exclusively. Many Borrowers choose to utilize the flexibility of an FHA loan even when they could place a larger down payment on a property.)
It's also not true that a Borrower must be a first-time home buyer in order to obtain an FHA loan. It is true however, that FHA loans cannot be used to finance investment properties, or vacation/2nd homes.
The rules and guidelines set forth for FHA financing are based on FHA's common sense approach to lending. In several distinguishable ways, FHA Underwriting Standards often provide Borrowers with "the path of least resistance" for financing their home.
What do I mean by that?
Here are some examples to provide an explanation ... and show how using an FHA loan can prove beneficial to you as a Borrower:
- Down Payment: The minimum down payment for FHA loans is 3.5%
- Type of Down Payment: FHA Allows Borrowers to receive gift funds from Family Members (and in some cases, other ways as well)
- Credit Scores: FHA allows Credit Scores well below Conventional Loan Requirements
- Credit Histories: FHA allows minimal, fair, and sometimes no-credit Borrowers to qualify, pending other factors
- Major Credit Events: FHA allows Borrowers to rebound more quickly (shorter waiting periods) after a Bankruptcy, Short Sale, or Foreclosure than most all other types of financing
- Co-Signing Borrowers: With an FHA loan, Non-occupying Borrowers (typically relatives) can be introduced as Borrowers to assist in income or credit support for the Primary Borrower.
- Employment History: FHA is the most forgiving Loan Product regarding job tenure, job stability, length of employment, how income is received, etc.
- Interest Rates: FHA loans typically run about 1/4% to 1/2% lower than Conventional Loans, when Credit Scores are equal
- Restrictions: FHA can be more discriminating on some property types (Homes in disrepair, Condominium Complexes, cost of Mortgage Insurance are examples)
In my estimation, FHA loans have taken a bit of a bad rap over the years. Often they are perceived in a negative light. Most often that is because of the Mortgage Insurance costs typically associated with them.
But the cost of monthly Mortgage Insurance payments can be a small price to pay when the benefits of an FHA loan are weighed in comparison by a Borrower. And the possibility of dropping/addressing the Mortgage Insurance cost exists in the future. (Contact me for more info or clarification.)
But as you can see
It's imperative that I, as your Chicagoland Mortgage Originator, understand ALL the related pieces of your home buying transaction, credit, and finances in order to determine and suggest one loan program versus another to you.
In order to do that, I'll ask you to provide me some info and documentation upon first contact. (A list of the typically required info and documentation requested can be obtained HERE).
But after this crucial portion of the process is completed and we've discussed your wants and needs together, you may be surprised to find that an FHA loan is the best (and/or only) option available to you.
Should you like more info regarding the FHA loan program or borrowing with an FHA loan, FHA Guidelines, or other loan products, please contact me. I'll be happy to provide you the info you need and answer your questions.
I urge you to keep an open mind during our discussions and when considering lending programs. With so many mortgage options now available to Borrowers, you wouldn't want to dismiss or overlook an option prior to having all the info you need at your disposal ...
* Hoping to Buy or Refinance a Home in New Lenox or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I can be easily found at:
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed
American Portfolio Mortgage Corp.
Cell or Text: 708.921.6331
Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including:
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago,
Cook County, and elsewhere within IL & WI.
Referrals are Appreciated & Welcomed!