Providing more loans than any other organization, the FHA was established in 1934 and has given loans to over 35 million borrowers. Understand, though, the FHA does not actually fund your loan, it simply insures it. Lenders feel safer with FHA because the FHA will pay off the loan should a borrower default.
Giving needy families the opportunity to purchase homes, President Bush convinced Congress in 2006 to pass a proposal for the FHA to modernize they way they function and approve loans. At the time, the FHA mortgage rate was only 5.5%. (Here’s a quick peek at the rates for those looking to compare mortgage loan rates. FHA mortgage rates in today’s market dictate that on a 30 year fixed loan at 6 percent, you will have to pay 1.875 points. You can also get a 6 percent interest rate for a 15 year fixed loan, but the points will only be 1.25.) An FHA loan, if you are a borrower, could be your best option, for a couple of reasons. First, to qualify for the loan you do not need to have high quality credit. Because of the sub-prime lending problem, many lenders have become far more strict about who they lend to. Average and even above average credit just won’t be enough to get a loan now. However, you could still get an FHA loan because other things are considered, like income and debt-to-income ratios.
Bankruptcy can also be a factor that holds people back. As long as there are other favorable factors, FHA loans will still consider individuals who have a previous bankruptcy. If you are really concerned about whether you can secure financing, and you have bad credit or a bankruptcy on record, then you need to get credit consolidation and/or get debt management. Typically, people can get help with making the right steps to reduce their debt-to-income ratio, not to mention potentially improving their credit score.
Typically, FHA loans require a much smaller than typical down payment to get the loan. Some borrowers will see this as an added incentive. Even for those that have more money to use as a down payment, it can often make more sense to use that money for growth by finding investments that give a good return.
When all is said and done, the FHA is meant to help responsible and deserving people purchase their own homes. This is one government programs that actually works pretty well.