Discover FHA Loans and How They Work
An FHA loan is a homeownership arrangement by the Federal Housing Administration (FHA) in which it issues loan insurance to expand homeownership opportunities. The agency gives mortgage insurance to FHA-certified lenders to protect them against losses incurred on FHA loans.For example, if a homeowner defaults on a loan, the FHA cushions the lender against the loss. The borrower bears all the mortgage insurance expenses. The FHA is an arrangement of the US Department of Housing and Urban Development (HUD).
The FHA loans are often available in fifteen and thirty-year terms with fixed interest rates. The agency offers flexible underwriting standards, which allow borrowers with no pristine credit, high income, or cash savings to become homeowners.
This coverage shields the lender from a loss should the borrower default on loan. However, it comes with a catch: the homeowner must pay FHA mortgage insurance. For all FHA loans, the borrower must pay two mortgage insurance premiums:
After 11 years of continuous payment of FHA mortgage premiums, most borrowers can have their premiums canceled. This is based on the assumption that they have financed 90 percent and made a 10 percent down payment. However, FHA loans with an LTV bigger than 90 percent must carry the insurance to the full term.
Homeowners who wish to take FHA loans must meet the following guidelines:
Borrowers of FHA loans must identify reliable FHA-certified lenders. Different lenders offer different rates, costs, and underwriting standards. Borrowers can get the loans through major banks, credit unions, community banks, or independent mortgage lenders.
To apply for an FHA loan, a borrower needs the following key steps:
Finally, yet importantly, borrowers need to compare their offers. They can do this by getting preapproved with several lenders to compare different rates and terms. This ensures that they get the best deal. At Blake B Mortgage, we’ve been helping our customers get the home of their dreams for many years. Get in touch with us today to learn more.
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