FHA Bad Credit Home Loans

FHA bad credit home loans are federal assistance mortgage loans issued by federally qualified lenders insured by Federal Housing Administration in the U.S. Having originated during the Great depression of 1930s, the FHA loans have been able to provide homes for the low income groups of America.

This was established under the U.S National Housing Act of 1934 with a view to provide homes for thousands of homeless Americans, to eradicate unemployment, and to insure various other loans.

FHA bad credit home loans are known to be the best solution for owning a home, if you are running a bad credit. You may qualify for the mortgage even if you have a bad credit, high debt to income ratio, or filed for bankruptcy in the past. Bad credit equity home loan can work well for you even if you do not have money for down payment or closing costs.

With the help FHA program many bad credit Americans are now proud home owners. FHA does not build houses or make plans or give loans. It only acts as an insuring agency that insures loans given by private lenders.

Once the borrower makes arrangements with the lender about the loan, the FHA scrutinizes the applicant and work on the principal if it is risk free and then insures the lending institution against the loss of the principal amount.

The borrower has to pay one half of the insurance premium, if he declines the balances for the lender. As a result, the borrower enjoys 2 benefits
1. Appraisal by the FHA inspector
2. Lower interest on the mortgage.

To obtain FHA loans one must first contact private lenders or mortgage brokers. Since every lender has a different rate, it is always a good idea to contact as many lenders as you can, to compare rates. Then the potential lender assesses the prospective home buyer on his income, debts to income ratio, history of previous debts and their repayment, etc.

Based on the income and monthly expenses of the borrower, the lender assesses the affordability of a house, the type of house which suits the borrower the best, and then decides on the principal of the loan, the interest, etc.

The basic documents required for getting FHA loans are the following:

1.2 years experience in employment (last two years of schooling, for recently graduated)

2. Credit score above 620 (if no credit history, cell phone bills, rent bills, etc can be used.)

3. Proper ID (Birth certificate along with a copy of State security card, State Driver’s license.)

4. Debt ratio below 36/46

FHA insures adjustable rate mortgages in periods of lower interest, thus enabling borrowers to enjoy more affordable mortgage financing.

By FHA program the process of buying a home has become a lot much easier and affordable than traditional real estate mortgage home loans. These loans are primarily targeted at the low income and middle income Americans.

Even self employed can apply for the loan. FHA allows purchasing a home 2 years after a bankruptcy and 3 years after a foreclosure. Hence, for a first time home buyer there is no other better option than an FHA loan. Also, you need not be a first time buyer to opt for an FHA home loan.

Anyone can opt for an FHA home loan, provided you do not have more than one FHA loan insured at a time.

Down payment Assistant programs are loan programs intended to assist first time home buyers about the first time down payment requirements and closing costs as required by the FHA loan program.

Single family houses, triplexes, duplexes, mobile homes, factory built housing, 1-4 unit primary residences, approved condominiums, wide manufactured home, all qualify for the loan.

Like the sides of the same coin, FHA loans too, is not free from pitfalls. It is not fit for all borrowers. Of course it may make your dream come true of owning a home, but there are loopholes.

1. Low Limits: The borrowers cannot borrow as much as he wants. The limit is relatively low compared to other conforming loans

2. Rigid mortgage insurance structure

3. Need for credit: Even if it comes under a bad credit home loan, there must be some credit for them to look at, as a qualifying criterion

4. Limited options: Has limited option compared to non-FHA loans
Even if it has the above stated defects, the merits outnumber the demerits and hence these loans are good fit for a vast majority of borrowers.