Don’t be intimidated when researching your first home loan; there are organizations out there whose main goal is to assist folks who would otherwise not be able to get approved for a conventional mortgage loan for whatever reason.  The Federal Housing Administration is one of these organizations, and they can be of great assistance to first time homebuyers with the many different programs they offer.

The Federal Housing Administration has been in business since the mid-thirties.  Back in those days not many people were able to afford their own home, and the advent of this organization by the federal government opened the door to the American Dream for many people.   What FHA does is they guarantee home loans to lenders, meaning if the buyer were to default on the home loan and go into foreclosure the lender would not be left out to dry as the FHA would work with the lender to make sure they receive the money they are due.  This is very appealing to lenders, of course, since there is no guarantee with a conventional (conventional refers to non-FHA guaranteed loans and non-VA guaranteed loans) loan that they will receive all the money due. 

FHA loans are different from other loans because lenders who work with the FHA need to follow the strict guidelines set forth by the FHA.  Credit requirements are not as strict for FHA loans as they are for conventional loans.  This means that someone who might not otherwise qualify for a home loan due to poor credit may be able to get approval because of the FHA guarantee.  Lower down payments are also a characteristic of FHA loans.  Most lenders like to see at the very minimum a 5% down payment, and preferably 20%.  FHA understands that not all first time buyers can manage to get a sum like this together, and can guarantee loans with down payments as low as 3%.  This big monetary difference can make it possible for people to purchase a home without going broke to do it.

Not all lenders are required to offer FHA loans, and not all lenders do.  For some lenders, they would rather not deal with the extra paperwork and additional regulations required by FHA.  Therefore, getting a guarantee from FHA does not necessarily mean that a borrower is automatically approved at any financial institution.  Borrowers will still need to be approved through the lender since the FHA guarantee does not serve as a loan approval.  FHA does not do any loan funding, so they are not capable of giving money to borrowers.  They merely make the process easier.

Since FHA has many rules and regulations it is important for potential borrowers to get as much information as possible before attempting to get an FHA loan.  There are monetary limits as to how much FHA will guarantee, and FHA also requires stringent inspections of homes prior to guaranteeing a loan for that particular property.  If the home has structural damage or unsafe levels of lead or any other sort of similar problem then FHA will more than likely decline to guarantee the loan.  After all, FHA does not want to guarantee a loan on a home, which may not be standing for much longer, or one that will wind up abandoned because the owners cannot or will not make costly repairs.

FHA loans can also be used to purchase HUD foreclosure homes.  These are homes, which were previously guaranteed by FHA and went into foreclosure.  They are then auctioned off for the remaining balance.  Since these homes are sold “as-is” many first time home buyers take advantage of the opportunity to purchase a fixer upper at a highly reduced price.  Using an FHA loan to purchase this sort of property makes it even easier to attain the goal of being a homeowner.

Owning a home can be a very gratifying experience.  Utilizing an organization like FHA can take a person many more steps closer to homeownership.  It is definitely worth it to look into programs offered by FHA in order to secure a mortgage and get a home.   The American Dream is within reach for nearly everyone with help from the Federal Housing Administration.

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