FHA Loans

An FHA loan is a loan that is issued by a lender, and guaranteed by HUD. The requirements for an FHA loan are much easier than the requirements for a conventional loan, which makes it a popular option for first-time home buyers. The majority of FHA loans are made to first-time buyers. However, FHA loans are not limited to first-time buyers, although a borrower may have only one FHA loan at any given time.

A conventional lender will tell you that you must have excellent credit and a 20 percent down payment to get a mortgage. This is not entirely true. Those requirements do hold for conventional mortgages, but it is still possible to buy a home with spotty credit and a down payment of only three percent.

The creation of mortgage insurance, which FHA has provided since 1934, has made lenders more lenient in providing mortgages, since the lenders are guaranteed to receive their money even if the borrower defaults. However, the presence of mortgage insurance, whether it is private mortgage insurance or FHA mortgage insurance, does not guarantee that a mortgage will be approved, one still must pass the approval of the mortgage insurer. So long as a borrower meets FHA�s qualifications however, an FHA-approved lender will issue the mortgage.

FHA mortgages are designed for owner-occupants, and not investors. There is no age limit, and there is no preset income level that is required for a borrower. FHA only requires that the borrower have enough income to make payments, have three percent of the mortgage amount for a down payment, and a satisfactory credit record. The down payment may be a gift, and credit requirements are a lot less severe than that of conventional lenders.

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