Whether you are a a first-time homebuyer or a veteran of two or more homes, the FHA has programs that can help just about anyone improve mortgage terms and expand financing options. FHA loans are for anyone -- first-time homebuyer or not.
What can the FHA do for you?
The benefits of pursuing an FHA loan are numerous, and can be very powerful tools for any homebuyer.
Did you file bankruptcy more than two years ago? That would be a major issue at almost any bank. With an FHA loan, that's not a problem.
Was your home foreclosed on more than three years ago? Again, that's not a problem with the FHA, even though it's a deal breaker for many conventional mortgage lenders. The FHA provides more lenient terms for borrowers with shorter work histories, self-employed individuals, and those with higher debt levels than typical banks would accept.
All that, and we haven't even mentioned the most well-known feature of FHA loans -- the 3.5% down payment. For many homebuyers, it could make more sense to pay less down and keep your cash invested, or in reserves for a worst-case scenario. With the FHA, that's possible, but with other lenders, it may not be. That 3.5% down payment, by the way, is available to all FHA borrowers, not just first-time homebuyers.
The FHA's programs are far more vast than can be entirely covered in this article. For a full breakdown of the FHA's programs -- including special options for teachers, police officers, and even real estate investors, check out its website here.
The only catch for experienced homebuyers: you can only have one outstanding mortgage with the FHA at any given time.
What exactly is an FHA loan, anyway?
FHA stands for Federal Housing Administration. The FHA was created in 1934 in order to stabilize the mortgage market, raise the standard of living in the U.S., and ensure adequate home financing options for the nation's citizens.
The FHA doesn't actually originate "FHA loans." Instead, it provides insurance to lenders on loans originated that meet the FHA's standards. In this way, borrowers reap all the benefits of an FHA loan, while banks and lenders benefit from the extra protection of the FHA's insurance.
When the credit crunch hit markets in 2008 and 2009, traditional mortgage lending all but dried up. It was only the government guaranteed programs -- like an FHA loan -- alongside lending backed by Fannie Mae and Freddie Mac that existed. At the peak of the crisis, FHA loans as a percentage of all U.S. mortgage loans skyrocketed from about 2% of loans to nearly a third.
The Foolish bottom line
Whether you're considering your first home purchase, or you already have bought and sold multiple properties, the FHA is a viable option for your home financing needs. The government agency allows banks to offer much more favorable terms to borrowers as part of its mission to raise the standard of living across the U.S.
If you're in the market to buy, at the very least, an FHA loan is worth considering.
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