April 27, 2011
“How can the FHA help me buy a home?” That’s one of the most frequently asked questions about the FHA home loan program. There is plenty of information about FHA home loans, but if you’re a first-time home buyer and don’t know where to look, having that question answered may be the most important part of the decision making process when trying to choose between a conventional loan and an FHA home loan.
FHA loans are different than conventional mortgages in several basic ways. To start, FHA-insured loans are more attractive to lenders because the U.S. government backs the loan. That means lower risk for the lender. Because the government insures the loan in case of default or foreclosure, applicants with past credit trouble may have an easier time getting an FHA mortgage than a conventional one–and at competitive terms.
The FHA specifically addresses the problem of bad credit; the official site says, “You don’t have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.”
One of the most attractive aspects of the FHA-insured mortgage loan is the down payment. FHA loans generally require only 3.5% of the loan up front. Compare that to 10% (or higher) required for some conventional loans and it’s easy to see why many people choose the FHA loan over a conventional option.
The FHA official site says in addition to a lower down payment,”FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.”
Another aspect of FHA loans, which is not found with conventional equivalents, is the FHA’s willingness to assist you if your home ownership is threatened by loan default or foreclosure. The FHA and lender can work together to find a solution to avoid foreclosure and help you keep your home.
The FHA, as mentioned above, insures the home loan–it does not issue them or set interest rates. Buyers must shop around for a lender with competitive rates and terms the same way required by a conventional home loan. The difference is the with the FHA there is a network of people ready to help with credit counseling, assistance and advice about avoiding housing scams or other types of fraud, and budgeting issues.
There’s nothing wrong with choosing a conventional loan in the end if you can get more competitive terms and conditions, but it’s best to compare FHA and conventional loans side by side to see which one works best for your needs.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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