An FHA loan is a mortgage loan insured or guaranteed by the Federal Housing Administration to help potential or first-time home buyers purchase a home. FHA loans are preferred over conventional mortgage loans because they offer low interest and accept less-than-perfect credit.
While the FHA is insuring the loan, they are not providing the money for the purchase. The money comes from an approved FHA lender. They guarantee the money to the bank in the case that the borrower defaults on the loan. Continue reading to learn more about FHA loans, FHA lenders, and the best ways to find an FHA lender.
What is an FHA-Approved Lender?
An FHA-approved lender is a lender that has been approved by the FHA for the purpose of providing money to potential home buyers. It’s important to realize that just because they’re all FHA lenders does not mean that they will all offer the same interest rates or charge the same for closing and loan costs. For this reason alone, it’s important to shop around for the FHA lender that offers the best rates and terms. Do not assume that all FHA lenders are going to be the same. FHA lenders are no different than other lenders in the aspect that their fees are going to vary among different lenders or mortgage brokers.
How to Find FHA Lenders
Finding an FHA lender is not as difficult as you might think. The U.S. Department of Housing and Urban Development website, in addition to offering lots of information on FHA loans, offers assistance in finding an FHA lender. It allows you to find lenders based on certain criteria such as single family or multi-family servicers, single or multi-family providers, and mortgage programs, among others.
There are also many websites with FHA lender directories that you can use to find an approved FHA lender. Once you get to the site, you indicate what state you reside in and a page will come up with all the cities in that state that have FHA lenders. From that point, it’s relatively easy to find one in or close to your location.
What Are Some of The Requirements for an FHA Loan?
Despite the fact that FHA loans are the most preferred mortgage loan because of their more lenient terms, there are still requirements that must be met, even if they are provided by an FHA lender. Some of the major requirements include:
- As a borrower, you must purchase two types of mortgage insurance: an upfront insurance and an annual premium. These are to protect the bank in case you default on the loan.
- The FHA sets certain loan limits based on the type of property as well as its location.
- Your debt-to-income ratio cannot be higher than 43%.
- You must meet certain credit score requirements. However, the FHA may set one limit and the lender may have another limit. Generally, the FHA requires that it must be over 500.
