FHA Loan Requirements - What is FHA Loan

FHA loans are not actually loans. What they do is to provide insurance for the loan granted by the accredited lenders. This loan is federally insured making it less risky to the lending companies. FHA loans are easily available to everyone more so to those who have less than favorable credit rating. In conventional mortgage loans, the lender requires an upfront 10% down payment while with the FHA, the borrower can pay as little as 5% of the loan amount. This means, even if the borrower doesn’t have much cash on hand, he can get an FHA loan regardless.

Further, the FHA loan can be used to purchase a house needing some repairs. This loan product is called 203k loan. This combines the cost of the house and the repairs into one single loan. With this loan, the borrower doesn’t have to wait for the house to be repaired before turnover. He can utilize this loan program and do the repairs himself or contract somebody to do it, since the cost of repairs will be included in the loan amount anyway.

How does one apply for an FHA loan?

Applying for an FHA loan is the same as applying for a conventional loan. You have to meet the eligibility requirements and submit necessary documentation. Once the lender reviewed your application you will be advised to submit supplemental documents and to pay the down payment. Your monthly amortization depends on your gross income.

If you plan to apply for an FHA loan, you need to educate yourself about the process. The internet has a wealth of information available which you can download for free. Also, you need to assess your finances. Ask yourself, “How much can you afford?” Do not go beyond your limits. Check all your options. Get quotes and seek out an FHA accredited lender with a good track record and reputation.

As a last note, FHA loans employ a higher debt to income ratio. This allows the borrower to have more room in their finances. They are able to stretch their budget and makes purchasing a home more affordable. In addition, since FHA loans are federally insured, more banks participate in this loan program thus, giving you, the borrower, and more options. Before you select the accredited lender, it is best to consider more than one proposal. Spend time reviewing the quotes before making a commitment with the accredited lender.