Get familiar with FHA loans


FHA is short for the Federal Housing Administration, which is a government funded group under the umbrella of the Department of Housing and Urban Development or the HUD. It dates back to 1930, to the time of Great Depression, when the U.S. economy was hit. During this period, people stopped buying houses because many of them lost their jobs and livelihood. Not many of them could afford a new home. The administration was created to stimulate homeownership, and therefore, to raise the economy. It was its primary purpose.

Now that the economy is experiencing depression once again, the government is creating measures to stimulate homeownership. You need to know that the FHA is not the one giving out these loans, it only provides insurance to the mortgage lenders who borrow money to those who apply for it.


FHA loans are excellent because they allow potential first time home buyers with past credit problems to accomplish their dream of breaking into the housing market. They differ from conventional ones in many ways. For example, the down payment required is much lower. The same goes for credit requirements, and that is why they are more available to a wider range of potential homebuyers. They are also appealing to the lenders, because of the protection against loss if the borrower defaults on the loan. No matter what happens, the banks will still get paid.

It is far easier for a borrower to get approved than with the conventional loan options. All you need to do is visit an FHA loan lender, and apply. There are many benefits of getting accepted, for example, a down payment is as low as 3-5%. They are also more flexible in calculating required factors, such as household income and repayment ratios.

FHA’s mortgage insurance program requires a 1.5% upfront payment which is automatically added to your loan, and 0.5% per year divided up and added to your monthly payments. It is very inexpensive compared to conventional options, which require almost 3% per year in mortgage insurance to be added to borrowers with lower credit scores.


Interest rates are based upon the same market factors as conventional loan products. Even when considering the FHA mortgage insurance premiums added to your payment, it is still less expensive than traditional solutions for the first time borrowers and those with past or present credit problems.

However, you need to be aware of FHA loan limits. Although they have lower maximum loan amounts than conventional mortgages, they do not have the income restrictions. Getting this type of loan with limited or no credit history, or credit problems, is much easier than obtaining a standard home loan.

The documentation required is almost the same as for your standard options. FHA asks for only a few additional documents, which take very little time to obtain, and are there to protect you during the mortgage process. Now that you know more about them, you are one step closer to accomplishing your goal of becoming a homeowner.

Harry Campbell
About Harry Campbell 7 Articles
I am a freelancer from London, who loves dogs and barbecuing at home.