What is an FHA Loan?

Before I get too far into this blog, the question of what is an FHA Loan needs to be answered.

Quite simply, an FHA loan is a loan insured by HUD for the benefit of lenders who make the loans to home owners. HUD will cover losses incurred by the lenders if the home owners default on their loan.

Why would a home owner want an FHA loan? Quite simply, they are much easier to qualify than a conventional loan. For instance, on a conventional loan you need 5% minimum down payment, on an FHA, its only 3.5%. Also, on a conventional loan with less than 20% down, it requires expensive private mortgage insurance.

FHA loans allow the down payment to be gifted by family, churches, non profits and other civic organisations.

The biggest reason for FHA loans is they will loan to those with less than perfect credit. For instance someone who has had a bankruptcy will have to wait 5 yrs to get conventional financing but FHA allows financing after 2 yrs from a bankruptcy discharge. Conventional loans will charge more for those with less than 740 fico and FHA doesn't have "risk based pricing".

An FHA loan also allows a parent to "co-sign" on the loan with their adult child if needed to qualify for the loan. This is called a Non Occupant Co-Borrower. The parent would have to fill out an application, credit, and qualify as if they were making the payment themselves. In many cases this can make the differnence if qualifying or not. After a couple of years, the borrower can refinance into another fha loan and take their parent off the loan.

For more information about Idaho FHA Loans, contact me at my office at 208-955-1234 ext. 30

Thanks for reading my Blog,

Roger Howell