FHA Home Loan

Every FHA home loan is available through the Federal Housing Administration. People are attracted by the possibility to make small down payments when buying a house, not to mention that it's easier to qualify for such mortgage. However, there are limitations to this money lending program, which is why experts say that they are not for everybody. As part of the program, the Federal Housing Administration insures the lender in case the borrower defaults.

The FHA insurance against default makes it possible for one to contract a really large mortgage in the form of an FHA home loan. Why? Financial institutions are a lot more open to lending large amounts of money when they are insured against default. Here are some other benefits of the FHA home loan option:

-there are no income limits; limits only apply to the amount that you can borrow (the lent amount corresponds to the home prices in your area);

-reasonable debt to income ratios, and a decent not perfect credit are required;

-the down payment can be as low as 3.5%;

-possible flexibility and leniency at times of financial crisis;

-no prepayment penalty fees;

-the possibility for funding home improvement etc.

As part of the contract for the FHA home loan, you'll also have to pay a modest ongoing fee in addition to an upfront mortgage insurance premium (MIP) of 1%. When a borrower defaults, the loan payment is made from the collected insurance premiums.

There are also downsides to an FHA home loan.

The insurance premium that we've mentioned above represents the main disadvantage here, because it can be more expensive than private mortgage insurance.

There are are also numerous standard loans that allow you to buy a house with minimum down payment. If you have a really good credit score, you can shop around in full trust that you'll find numerous competitive offers to take into consideration and analyze.

Then, an FHA home loan may be too conservative for your needs, not to mention that it can lead to negative amortization. By negative amortization we refer to the situation when the borrower owes more at the end of the month than at the beginning. It is therefore of paramount importance to determine whether this kind of loan is suitable for you.

If you are not convinced of the FHA home loan suitability, you'd better keep shopping around until your requirements are met and your needs satisfied.