Why would I need FHA Approved Lenders?

| January 2, 2012

Buying a home can be pretty confusing. There are so many acronyms! But FHA is one that you should pay attention to. FHA actually stands for Federal Housing Administration. It is a part of HUD which stands for Department of Housing and Urban Development. FHA is not a lender, but it does guarantee 100% of the loaned amount to the lender should you default. This makes it a better risk for the mortgage lender. HUD and FHA set the requirements for the program and once approved, an FHA approved lender must loan in accordance with FHA programs and within HUD guidelines.
Why is this important to you? Most people are aware of FHA loans because they offer low down payments. HUD’s mission is to help insure that all people have access to affordable home loans and good quality housing. Through FHA, they can encourage mortgage lending to people who might not otherwise be able to qualify because they do not have a significant down payment. FHA loans are typically made with a 3% down payment, rather than the 20% or more typically required in a conventional mortgage. FHA allows much more flexibility in down payments, credit scores and other qualifications for the mortgage. FHA loans can only be used if you intend to live in the property. It can be used for up to four units, but you must live in one of the units.
FHA is also known for programs that allow you to purchase a home that requires repair. Typical conventional mortgages do not exceed the appraised value, but an FHA 203k loan has many features that allow buyers to make necessary repairs and improvements. The process requires an appraisal of the current value as well as an appraisal for what the home will be worth after repairs have been completed. FHA approved lenders can loan up to 110% of the value of the home after the rehabilitation. You must borrow at least $5000 for the repairs. You must also live in the property, although there are provisions to rent elsewhere while rehabilitation is completed.

If you want to use an FHA program to purchase a home, you must use an FHA approved lender. These mortgage lenders have applied for and been approved by FHA. When you are ready to find and purchase a home, you should request pre approval with up to three mortgage companies that are FHA approved.

Category: Home Loan

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