How does an FHA Loan work? Well, what exactly is an FHA loan in the first place? For many first-time buyers, an FHA loan makes homeownership possible. In fact, in 2921, 357,540 FHA Loans were issued. But that's only a drop in the bucket compared to the total number of loans issued over the years.
"As of September 30, 2021, FHA had active insurance on more than 7.8 million single-families forward and reverse mortgages, with a total unpaid principal balance of more than $1.2 trillion.
"The percentage of first-time homebuyers using FHA Mortgage Insurance reached a new high of 84.61 percent of total FHA forward mortgage purchase endorsements in FY 2021. The share of mortgages insured by FHA to minority borrowers reached almost 42 percent of all FHA forward mortgage insurance endorsements in FY 2021. FHA served double the percentage of Black and Hispanic borrowers compared to those served through mortgage originations by the rest of the housing market this past fiscal year." – hud.gov
Why do buyers like FHA Loans?
An FHA Mortgage loan is a particular type of loan guaranteed by the Federal Housing Administration, a part of the Department of Housing and Urban Development, HUD.
If you can't pay your mortgage, the FHA will pay the lender back. this doesn't mean you're off the hook for your financial obligation, but lenders are more willing to lend to home buyers with low credit scores or low down payments if the FHA guarantees the loan.
FHA Mortgage Loans make homeownership more accessible and affordable to U.S. homebuyers who otherwise wouldn't be able to obtain financing.
Finance Brokers and Mortgage Lenders don't particularly like FHA Loans since borrowers can go directly to their bank and get the loan. But they're more than happy to secure an FHA Loan for a borrower.
Types of FHA Loans:
To qualify for an FHA loan, a borrower needs to meet the following rules:
To qualify for an FHA loan, borrowers must meet the following lending guidelines:
As with any good deal, a few drawbacks might not work for you.
Pros
Cons
Does It Work for You?
The critical question is: does it work for you? Now that you've seen how an FHA Loan works and some of its limitations, you should be able to answer. If you're comfortable with the requirements and the property you're looking at fits in, an FHA Loan is usually a good fit for a first-time homebuyer. Whichever Mortgage Loan type you choose, ask your Mortgage Loan Processor if they use a Mortgage BPO. Why? Because when a lender uses Mortgage Business Process Outsourcing, they're getting their processing services from a turnkey partner that makes the loan close quicker and for less money with fewer errors. All things that will work to your advantage.