Many people dream of owning their own homes but only very few are able to pay cash for them. This is why FHA mortgages are one of the popular methods to find a source for consumer credit. People who could not otherwise afford to own a house become homeowners with the help of FHA mortgage insurance programs.
FHA is the Federal Housing Administration. As part of the U.S. Department of Housing and Urban Development (HUD), one of the chief purposes of the FHA is to help people obtain financing for their homes.
How FHA Mortgage Insurance Works
As stated earlier, FHA mortgage is a way for home buyers to obtain financing for their homes. All home purchases require buyers to make a certain set percentage of the total purchase price, called the down payment. What the FHA mortgage insurance does therefore is to allow a home buyer to make a modest down payment and obtain a mortgage for the balance of the purchase price.
The mortgage loan itself is made by a bank, a savings and loan association, a mortgage company, a credit union, or any other lender. For it to become an FHA mortgage loan, the lender would have to be approved by the Federal Housing Administration. HUD insures the loan and pays the lender if the borrower defaults on the mortgage. The protection offered by FHA mortgages to lenders allows them to be more liberal with their terms than the prospective homeowner might otherwise obtain.
Who can get an FHA Mortgage?
The good thing about FHA mortgages is that almost anyone can get it. So if you have a satisfactory credit record, enough cash to close the loan and sufficient steady income to make monthly mortgage payments without difficulty, then you’ll have no trouble getting approved for an FHA mortgage. As a rule of thumb, only people who will reside in the property are eligible for FHA-insured mortgages.
There is no upper age limit set by HUD for the borrower. Nor is there a certain income level that the borrower must achieve in order to buy a home at a certain price. And although income is certainly an important factor, it is simply one of the several determining factors which are used by the HUD to find whether the borrower will be able to repay the mortgage.
Types of FHA Mortgages
There are several types of mortgages that FHA insures. These include:
- One-family residence
- Two-, three-, four-unit properties
- Condominium units
- Houses needing rehabilitation