What is FHA Loan?

The Federal Housing Administration guarantees mortgage that is funded by FHA-affiliated lending companies in the U.S. That said, this government-insured loan program doesn’t let out money themselves, they merely back-up mortgage handed out by private lenders to reduce the financial danger these lending companies are exposed to.


FHA Beginnings

This particular loan program was initiated by Congress in the year 1934. At present, the FHA is the largest mortgage insurer in the entire globe now with over 30 million properties guaranteed. Furthermore, it is under the U.S Department of Housing and Urban Development, and is the sole government agency that generates their own income and therefore no longer collects taxes from the public.


What FHA Does

It’s vital to note that FHA mortgages backup lending firms from losses should a borrower fail in paying their mortgage fees. This lessens the lending firm’s risk in that the FHA pays on behalf of the debtor. You see, FHA guarantees loans on multifamily and single family houses which even cover manufactured hospitals.

texas fha home loan

FHA Loan Perks

  • Smaller Down Payments

The primary feature people love about FHA loans is that one isn’t necessarily obligated to put in a huge down payment. Borrowers whose credit scores reach 580 are permitted to put in a 3.5% down payment, while borrowers whose credit scores are below that but don’t fall behind a FICO standing of 500 will need to put in 10%. Most conventional mortgages demand an initial 20% down payment of the entire property cost; and generally, first-time homebuyers, fresh college graduates, and newlywed couples can’t afford that high of a down payment. This is exactly what makes FHA such a pleaser.


  • Make Use of Gift Money

FHA mortgages are also incredibly sought-after because they permit such valuable flexibility in evaluating household income and payment ratios. What’s more FHA allows the use of gift money, as well. Conventional mortgages are stern when it comes to the funding used in closing costs. But FHA can be arguably considerate in that if a debtor has charitable parties willing to fund his or her down payment, that can be arranged. A grand total of 100% of a home’s down payment can be paid through gift funds! Talk about a great deal.


  • FHA Loan Assumability

Additionally, loans under the FHA can also be assumed. If a borrower decides to not finish the loan, he or she may pass it on to an equally eligible borrower to continue what they started.


FHA Required Documents


FHA generally has a smooth process and the application isn’t complex nor is it taxing. The needed documents are as follows:

  • Names and location of your employers (past two years)
  • Gross monthly salary at your current job(s)
  • Pertinent information for all checking and savings accounts
  • Pertinent information for all open loans
  • Complete information for other real estates you own
  • Approximate value of all personal property
  • Certificate of Eligibility and DD-214 (for veterans only)
  • Current check stubs and your W-2 forms (past two years)
  • Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals


For the best FHA loan lenders, click the link!


By: Karissa