FHA Mortgages

by Mortgage Nerd on August 22, 2013 · 0 comments

How are the FHA loans a shift from the ordinary mortgages?

FHA loans are just like any of the other ordinary loans, but still are different than the ordinary home loans. This is mainly because of the requirements, the eligibility criteria and its advantages and even the disadvantages. It is much easier to obtain an FHA home loan, in comparison to the traditional mortgages. In fact, the process through which an FHA loan is secured, is much different than the process which is followed in case of the regular home loans. In case of FHA refinancing or loan modification too, you will be required to consider some additional factors.

FHA versus conventional home loans

The FHA loans are offered by the lenders who have insurance with the Federal Housing Administration, against the losses which may incur through borrower defaults. On the other hand, the lenders who offer ordinary home loans, are in no way insured by any government or private institutions. In case of the borrower defaults, it is the lender who will have to try and get back the money from the homeowner. Some of the other differences, in between an FHA loan and the regular mortgages are:

FHA loans have low down payment requirements, in comparison to the ordinary loans. Unlike the ordinary home loans, where you are required to make a down payment of 20%, the FHA lenders require you to make a minimum down payment of 3.5%. However, in order to enjoy this advantage, you would be required to have a minimum credit score of 580. On the other hand, in case of the ordinary home loan, the greater your credit score, the better will be the offers. So, even if you have poor credit, it may be possible for you to buy a home or refinance it through an FHA loan.

The interest rates on the FHA home loans are really low, if compared to its counterpart (the ordinary home loans). So, managing an FHA loan is much easier than an ordinary loan. It is mainly the interest rate, due to which it becomes hard for the homeowner to go on making the regular payments.

The loan limit in case of these two loan types, differ too. In case of the FHA loans, the loan limit is quite high. It is set at $729,750. On the other hand, the lenders offering ordinary loans are required to conform to the loan limit, mentioned by Fannie Mae and Freddie Mac. The loan limit in case of the ordinary loans is $625,500. If the lender and you agree to a loan limit more than this, it will be considered as a jumbo mortgage. Therefore, you can obtain an FHA loan, if you are in a high cost region, or if you need a bit more than the ordinary loans for buying a home.

The FHA loans do not have a large number of options under them. On the other hand, in case of the traditional home loans, you can have numerous offers to choose from. If you opt for an ordinary loan, you can obtain a 1 year loan, a 5 year one, a 10 year one and more, as per your needs and requirements.

So, this is how the FHA loans differ from the conventional loans. Obtaining an FHA loan can both be advantageous and disadvantageous. However, the advantages of FHA are more. Furthermore, considering the present scenario where most of the people are low on affordability and are crippled with bad credit, FHA loans make greater sense.

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