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What is FHA loan?

Finance: Mortgage

Most of you must not be aware of what is either FHA lender or FHA loans. The first most important question being, what exactly is this FHA? Let us go back to the year 1929. A financial crisis made a lot of Americans lose their home. Due to the crisis the banks were unable to pay the home loan amounts. The homeowner had no other option at that time apart from bank to repay the loans.

To cope up with this crisis situation, banking system in US was modified in the year 1934. A separate agency FHA (Federal Housing Administration) came into picture at that time. Their main function is to control the rate of interest, terms and condition for mortgage loans. They bought mortgages & also insured them. This helped the banks with their loan overhead.

Now when you have got a brief picture of what FHA is, let us discuss about the benefits of FHA loans. These loans are not available from any traditional institutions like the bank. You have to get the loan from an Individual FHA lender. In the recent past people got reluctant about FHA loans as some other better options were made available to them by the state. But when recession again hit the market, people started bending towards FHA loans again ensuring a comeback for FHA lenders too. Let us discuss some of the benefits of FHA loans:

1)With a minimum down payment of 3.5% you can get a loan up to 97% of the actual value of your house. A certain percentage can come as a gift which is a great benefit for new buyers.

2)Your credit score will not be a problem for availing FHA loans except for people who have extremely bad credit record may be denied a loan by an FHA lender. You will be given a thought even if you have bankruptcy or foreclosure in your credit history.

3)If you are self employed and are being denied loans by banks, an FHA lender is the solution to your problems. You can get a loan approval just by showing tax returns for last two years, present year balance sheet and a statement of your profit & loss account.

4)The mortgage rate of FHA loans is fixed. You will not have to loose your sleep worrying over fluctuating interest rates and get stable payments throughout the period of the loan.

5)An FHA lender will never insist you for collaterals. Hence if you are facing rejection from other financial institutions for not being able to provide collaterals, you can always get FHA loans.

Different FHA lenders ask for different rates of interest, generally varying from 15% to 25% but it can be even higher than this. Hence be careful while choosing a lender for loan. You can approach a number of lenders and compare the interest offered by each. Also keep in mind before going for FHA loans, if you are unable to return the amount within the given period, the lender can charge you extra interest on the loan.

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