FHA Home Loans Emerge As A Cheap Alternative For Low-Credit Sco

The U. S. Department of Housing and Urban Development (HUD) has a sub group called the Federal Housing Administration (FHA). The FHA is a by-product of the National Housing Act passed in 1934.

The FHA is not a lender nor does it build homes. The FHA exists to insure lenders against loss in the event that a homeowner defaults on a mortgage.

The public hears about "FHA loans" even though that is not a correct label. The FHA is actually backing the lender's loan. Therefore, the FHA loan should more appropriately be referred to as an "FHA-insured" loan.

There are some lenders who would ordinarily deny mortgages, except for the FHA guarantee. Because the FHA will back the mortgages, lenders may feel more comfortable granting the loan. Mortgage rates for these borrowers stay low.

An FHA mortgage loan may be worth considering if a borrower needs a loan that is less than 80% of the property value. This would mean that the borrower has a down payment less than 20%. If this is the case, there will be mortgage insurance payments required which will be 1.5% paid at closing against the loan and 0.50% annually which is paid monthly.

The upside of this requirement is that once the home owner is at 78% of the property value, the mortgage insurance requirement is over. Also, if homeowners have 15 year FHA loan with a fixed rate, they don't need the mortgage insurance.

Usually, the rates for FHA are higher than for other mortgage lenders. However, it could be a more affordable and actually a better deal. This would best relate to those with a lower than 680 credit score. This is relevant because of the new risk based loan pricing guidelines outlined by Freddie Mac and Fannie Mae.