FHA Loans are loans insured by the Federal Housing Administration (FHA), which is part of the US Department of Housing and Urban Development (HUD). These loans enable people who may not be able to qualify for traditional commercial loans to secure financing to purchase a home. Most commonly, the FHA bridges the gap to enable a home buyer to buy a home without the traditional 20% down payment. FHA loans can help first time home buyers to secure financing with as little as 3.5% down, and can help with closing costs of loans. FHA provides guarantees and protections to commercial lenders when they lend to select higher risk customers. FHA Loans were developed during the Great Depression of the 1930’s and the structure of these loans have evolved over time.

The Role of FHA Loans in the Current Market
Traditionally, about 15% of all home loans were FHA loans. During the housing bubble of the mid 2000’s, FHA loans accounted for less than 5% of all home loans for individuals. There were many commercial sub-prime loans on the market that attracted the interest of home buyers, including ARMs and interest-only loans and lending institutions adopted a “rubber stamping” approach in the underwriting process.The current market is much more “risk-averse” and with tightened documentation requirements of traditional loans, FHA loans have increased in popularity again, today commanding about 15% of the overall home loan market.

Pros and Cons of FHA Loan
An FHA loan provides a path for cash strapped first time home buyers to secure home ownership. Because a FHA loan does not require the traditional 20% down, the home owner is required to secure private mortgage insurance (PMI). PMI provides guarantees to the lending institution, in case a home owner defaults on a loan. It ensures the home owner has a little “skin in the game” to decrease the risk to the lending institution, in the case of home owner default. The cost of PMI will vary depending on how much of a downpayment is made and should be included when estimating the overall cost of a loan.

On the other hand, an FHA loan can provide a competitive advantage for you in a market where interest rates are rising. FHA loans can be assumable, meaning that if you lock in to a rate today, and opt to sell your house in 5 years, the buyer of your home may be eligible to assume your mortgage at the lower interest rate, thereby giving you a significant competitive advantage in a market where interest rates are rising.

Who Qualifies?
In most cases, consumers with lower credit scores can qualify for FHA loans when conventional loans are not an option. Additionally, when a consumer has declared bankruptcy, they may be eligible for an FHA loan after only 2 years. Consumers with a foreclosure on their records, may be eligible for a FHA loan after 3 years.

Buying Your First Home?
An FHA loan can

• Lower down payment requirements
• Lower closing costs
• Simplify qualifying for credit

Home Lender Depot Can Help
Home Lender Depot can help you navigate the FHA loan process. An important consideration is that interest rates for an FHA loan may be higher from some lenders compared to a traditional loan. Because a lender may incur additional costs to secure a FHA loan, these costs will many times be passed on to the home buyer. This is not always the case! Home Lender Depot is well positioned to help you navigate this market, and secure the loan that best meets your individual needs.

Call 1-877-867-00279 to speak with one of our loan officers to see if this loan is right for you.

One Final Thought
One other important consideration. If you are able to qualify for a conventional home mortgage, most times it will make sense to select this option. As a rule of thumb, a FHA loan should be considered only if you are unable to qualify for a traditional mortgage.

Market conditions continue to evolve in the home loan business. We stay current on the changing market conditions and are well positioned to give you up-to-date information that saves you money.