What Is A Fha Loan ?
To promote individual ownership of homes, the Federal Housing Administration (FHA) has set up several programs and schemes. Most of the loans under the FHA are mortgages, which are not provided but insured by FHA to the lender. Under this program, if the borrower fails to pay off the loan amount, the lender can get help from the FHA. This reduces the risk of the lender, enabling easy sanctioning of loan to the borrower.
Since the day of its formation in 1934, the FHA, later in collaboration with the Department of Housing and Urban Development (1965) insured more than 33 million home mortgages. Even at present, FHA has insured the mortgages of almost 800,000 home owners. This is primarily because of the low rate of interest it charges on the mortgages. Also the initial down payment that has to be made while buying a house can be as less as 3 percent, whereas most others have made 10 to 15 percent down payment mandatory. The FHA also encourages the home owners under them to finance their own closing costs, and also offers insurance on mortgages.
The FHA also controls the amount charged by a lender from the borrower loan documentation and assembling (that is the originating fees). Under the FHA rule, the borrower cannot be charged more than one percent for the purpose. Also, there are no penalties for prepayment, or paying off the loan amount before the stipulated time, as is the case with some other mortgages.
The only factors FHA mortgages have to consider before getting their loan sanctioned under this program are to have a fair credit record and the minimum amount required for down payment. Also, the total housing cost should not be more than twenty-nine percent of the gross monthly income of the family.
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