Alternative Loan: Federal Housing Administration

Another alternative source for loans rather then going through standard lenders, and investment banks is to contact the Federal Housing Administration and request a Federal Housing Administration Insured Loan. Born from necessity during the Great Depression as the sheer number of defaults and foreclosures rose alarmingly fast, The Federal Housing Administration was supported by the government in enough ways to bring more stability to the market and begin slowly enabling the market too heal itself.

What is a Federal Housing Administration Loan?

It is a loan which is insured by the Federal Housing Administration, rather than lent by, in order to protect lenders from risk as the Federal Housing Administration allows loans for people with less then clean credit scores to borrow a mortgage loan as well. This is almost always accompanied by a upfront mortgage insurance premium, also known as a UFMIP, which can equal up to and around 1.75 percent of the base loan amount at closing. There may also be a monthly mortgage insurance premium, more commonly referred to as MIP, which can vary in size based on loan-to-value ratio and the amortization term.

Qualifying for a Federal Housing Administration Loan:

There are a few requirements for receiving an insured loan from the Federal Housing Administration. While it is true that applying for these insured loans through a broker is easier then some alternatives it should be noted that in addition to the adjoining list, the borrower’s credit score will play an important role in what kind of loan and what requirements are enabled. The most common requirements are:

  • A steady employment history or worked for the same employer for at least the most recent two years
  • Must be in possession of a valid Social Security Number
  • Must be a legal resident of the United States
  • Must be of legal age to sign a mortgage in your state
  • Minimum reported credit score of 580 in order to receive maximum financing with the minimum downpayment of 3.5 percent of your loan

Additionally, the property you intend on purchasing with the insured loan from the Federal Housing Administration will also have to meet a series of guidelines and standards upon appraisal.

Why A Federal Housing Administration Loan?

Because the government is insuring lenders for acquiring your loan it is possible to get a loan with a much lower credit score then other loan types might allow as long as you meet the criteria. The loan limit alone with the standard 3.5 percent down payment is $729,750 which compares to the conventional loan limits of Freddie Mac and Fannie Mae both of who level out at the $625,000 limit.

Another feature which is often sought after is assumable liquidity which is consistent with a insured loan from the Federal Housing Administration, as the loan is on the house itself and can be assumed by the buyers of the house.

Because of these features and the ease of meeting the standard requirements it could be that the right loan might just be a Federal Housing Administration insured loan.