A PRIMER ON FHA LOANS

If you’re a first-time homebuyer, you might find the world of home finance a bit daunting. Mortgages come in all shapes and sizes, and interest rates can vary depending on your financial security, credit standing, and the size of home loan you are pursuing. Conforming, jumbo, fixed- or adjustable-rate … what does it all mean?

One type of loan for which you might qualify is an FHA loan. Since 1934, the Federal Housing Authority (FHA) has provided countless homebuyers with access to guaranteed, government-insured loans. This program has extended the option of home ownership to many responsible first-time buyers. While FHA loans are generally easier to qualify for than conventional home loans, it’s important to know a little bit of background information about this type of loan if you intend to apply for one. Here are a few facts worth noting for those interested in an FHA loan:

•The FHA does not actually provide loans; rather, it guarantees them. Only FHA Qualified Lenders are authorized to provide these loans, which the FHA then insures.

•FHA loans require both a credit report and an appraisal of the property for sale. If you begin the application process for an FHA loan, you should be prepared to pay for both. As with all home loans, a high credit score is essential to your ability to qualify.

•Loans backed by the FHA vary in different parts of the country in terms of loan cap amounts and general guidelines. Consulting a loan officer is vital to understanding the regional rules governing loans in your area.

•One of the attractive features of an FHA loan is its low down payment requirement. While most conventional loans involve a down payment of 20%, FHA loans can carry a down payment requirement as low as 3.5% – a great benefit to first-time homebuyers with financial security, but without a lot of reserve cash on hand.

•When pursuing an FHA loan, expect to provide ample documentation in the way of bank statements, employment verification, tax returns, pay stubs, and any other documents related to your financial holdings. Loan requirements in general are more stringent than ever, so be prepared to prove your financial solvency.

•FHA loans carry different interest rates that vary by lender, so make sure to do your homework and set your sights on the most attractive rate available to you.