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Everything You Need to Know About an FHA Home Loan

The idea of a Federal Housing Association (FHA) loan was designed over eighty years ago as a way of helping people with little income purchase property. The FHA offer to insure a person's loan, meaning people who may not qualify for personal mortgage insurance can still buy a home. The FHA does not actually lend money to people. It purely offers an insurance service, by insuring the loans people take out with other lenders.

The major plus of a FHA home loan is, because of who is insuring your loan, you are likely to experience lower interest rates and lower repayments. There are several different types of FHA loan available, including variable and adjustable rates as well as fixed rate and energy efficient. While an FHA home loan makes it possible for more people to apply for a mortgage loan, there are restrictions in place.

FHA insurance is subject to a person's status, past financial relationship history and the location of the property they plan to buy. As well as requesting your credit report, the FHA will also consider your debt income ratio before offering you the chance of a FHA home loan. This is to ensure you do not overstretch yourself financially, which can put you at a higher risk of defaulting on repayments leading to repossession.

While an FHA home loan could give you the opportunity to buy your own home with a down payment of as little as 3.5%, there are disadvantages that need to be considered. Because you only pay a small down payment upfront,the FHA will take a premium from you, around 0.85% per month, for five years. This is strict and cannot be changed, even when you begin to have good equity in your home.

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