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Tuesday, May 22, 2007
Mevish Jaffer, contributing editor
First time buyers that have minimal to no funds set aside for a down payment, a less than average credit score, and who are burdened with a pile of bills can apply for an FHA loan in order to finance the purchase of their first home. An entity of the Department of Housing and Urban Development, the Federal Housing Administration was originally established over 60 years ago with the purpose of assisting first time buyers, including low-middle income families and minorities, in acquiring the financing necessary to buy a home. FHA-backed loan applications can be obtained through most banks and mortgage companies in a homebuyer’s local area.
FHA Loans are Declining
FHA loan lenders benefit from knowing that they will never lose any money as repayment is guaranteed by the federal government. This financial assurance enables banks and mortgage companies to offer lower mortgage rates that are easier for first time buyers to be eligible for than traditional home loans. However even with all things considered, FHA loans aren’t as popular among the masses as they use to be. This is mainly due to the fact that the amount a buyer can borrow hasn’t been able to keep up with the ever-increasing costs associated with buying a home. In 2003, the FHA helped to finance an estimated 1.3 million homes, but last year that number decreased to only 425,000. In states with steep real-estate prices, the decline is even more prevalent.
Advantages and Disadvantages
While declining numbers of FHA loans don’t lie, first time home buyers still need to consider an FHA loan as a source of financing their home. The market is currently experiencing high numbers of foreclosures which is making other forms of funding such as subprime loans and 100% financing that much harder to acquire. FHA loans can be of great help as they offer the following benefits to potential homebuyers:
* Large down payments are not required and lenders assist with attaining it
* Credit rating is not a factor
* Buyers aren’t penalized for having more debt to their name
* Buyers have several different mortgage options to choose from
* FHA loans come with competitive mortgage rates
Along with the advantages associated with FHA loans, there are also a few disadvantages that buyers need to take into consideration before applying. First, there are limits as to how much a buyer can borrow; the maximum amount is contingent upon specific areas of residence. Second, FHA loans come with pricier mortgage insurance. The annual costs associated with FHA loans are just about the same as with traditional mortgages, with the addition of upfront insurance premium charges. While there are some negative aspects to FHA loans, the benefits still outweigh the costs. These loans have assisted thousands of first-time homebuyers around the country to purchase their first home and their presence remains to help many more!
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