FHA loans

An FHA loan is a loan that is insured against default by the Federal Housing Administration (FHA). FHA does not lend the money, they simply insure the loans. The purpose of FHA is to promote home ownership for people who do not have a lot of money. Almost anybody can get an FHA loan, providing that you have reasonable debt to income ratios and decent credit. A few years ago, the FICO score needed for FHA and VA was only 580. Recently, however, lenders have tightened standards and raised the minimum scores needed on both loans to 620. A few months ago, FHA also raised the down payment necessary for an FHA loan from 3% to 3.5% (although, a borrower is permitted to receive the down payment money as a gift from a family member). At one time the down payment could also have come from a non profit organization that participated in Down Payment Assistance Programs, such as Ameridream. However, at the moment, the Down Payment Assistance programs have been eliminated by the Federal Government. Ameridream has been fighting this decision through the courts for many months. Most recently, the Obama administration has proposed that the $8,000 first time home buyer tax credit may be used as partial money towards the down payment. But the buyer must put some money up as well. These complicated rules are still being worked out. One disadvantage of FHA loans is that they require Mortgage Insurance Premium (MIP), which is 1.5% of the loan amount, and is paid by the buyer at closing. Presently, the maximum FHA conforming loan limit is $417,000, but in higher cost areas this can be adjusted to 115% of local median prices, not to exceed $625,000. FHA is quite lenient as well. If someone has lost a home to foreclosure, they are permitted to buy another home with an FHA loan as little as three years later. The interest rates on FHA are very close to those of the conventional loans.