Launched in 1934 to help boost the housing market, the Federal Housing Administration (FHA) loan is still pretty much the same today. It’s a government-backed loan that allows people to buy a moderately priced home with a down payment as low as 3.5 percent. The partnership between the FHA and HUD has helped many people since its inception, insuring over 34 million home mortgages and 47,205 multifamily project mortgages. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio. Note that the FHA has maximum mortgage limits based on the place you live. To find out how much house you can buy with an FHA loan use LendingTree’s FHA loan limit tool. In the 80 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world.
The government doesn’t actually lend the money, but it does insure the mortgages. That way, if the borrower can’t repay the loan, the FHA insurance reimburses the lender. This allows mortgage lenders to offer loans to less affluent applicants who might otherwise be denied.
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You can put as little as 3.5% down. It doesn’t even have to be your own money – the down payment can be a gift or loan.
FHA underwriting guidelines are more flexible than conventional (non-government) guidelines.
FHA lenders take what they call “compensating factors” into account when they underwrite loan applications. This can help those who are not perfect on paper but still deserving of a home loan.
FHA loans can be less expensive than non-government loans for people with small down payments or credit issues.
FHA loans are assumable. This feature can help you sell your property if rates are higher in the future.
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If you have a great credit history, you can probably get a mortgage more cheaply than through an FHA loan. However, not everybody has that luxury. For example, if you are still fairly young and haven’t had time to develop an attractive credit history, an FHA loan might allow you to qualify for a mortgage sooner than would otherwise be possible. Also, if you have had some difficulties with credit in the past but have since gotten your finances in order, an FHA mortgage might encourage lenders to be more forgiving about your history.
