What is an FHA Loan?
Like most Americans, you probably dream of owning a home some day. If you’d like to make that dream a reality by purchasing your own piece of Madison real estate, you’ll need some assistance. Even if you are working and your credit rating is in reasonable shape, you may wonder if you will qualify for a mortgage. A good source of information is one of the many qualified Madison realtors, who will give you many useful suggestions. One suggestion might be to apply for an FHA loan. That is, a mortgage loan made by a regular lending institution, but insured by the Federal Housing Administration (FHA). If the borrower defaults, the FHA guarantees that it will repay the lender.
Qualifying for an FHA loan
Do you qualify for an FHA loan? Because this type of loan was established as part of the FHA’s program to promote home ownership, the qualifying criteria are quite liberal. Your credit rating should be okay, but does not have to be tip-top. You may qualify even if you have previously declared bankruptcy. Your best resource for more information about FHA loans and throughout the whole home buying process is Madison realtors, who have knowledge and experience in the Wisconsin property field. For example, they can tell you not only what the upper limit of FHA loan is for various property types, but also what they have listed for sale within that price range.
Why take an FHA loan
FHA loans offer many advantages to the home buyer. One of the most important is that you are required to provide only a relatively small down payment. – sometimes as little as 3.5 percent! A blood relative may cosign the loan application for you, even though they will not be living in the house with you. With an FHA loan, it is also easier to apply monetary gifts toward the down payment. In addition, there is no penalty if you pay off your mortgage early. FHA loans are generally assumable; that is, if you sell your home, the buyer may simply take over your mortgage. Finally, there is a type of Federal Housing Administration loan called an FHA 203k which is designed for buyers of “fixer-upper” houses. It combines a housing loan with a home improvement loan, in one convenient package.
How it works
When you are ready to ask for mortgage approval, you can choose from among a number of prescreened FHAS lenders to select the one that is best for you. (For a list of recommended lenders, Madison realtors will be happy to assist.) The lender will also look at you – in particular, at your debt-to-income ratio, to insure that your earnings are sufficient to cover your existing debts plus the mortgage payment on your Madison real estate purchase every month. At the time your loan application is approved, you will have to pay a one-time mortgage insurance premium of one percent, and after that, a small ongoing monthly fee.