Find Best Deals in Real Estate
Become a member and find all real estate bargains, some as low as $10,000.

Chapter 7: FHA Loans

The previous chapter touched on some of the available financing options for HUD homes. FHA loans were briefly mentioned, but since they are the most common form of financing for these homes, buyers can benefit from further information on all FHA financing has to offer.

While the popularity of FHA financing is nothing new, the recent economic downturn has made it even more popular. Currently, strict lending guidelines exist, increasing the demand for sustainable mortgage financing. While tighter regulations are now in place to avoid another subprime lending disaster, the FHA still offers many excellent loan options that make it easier for working class Americans to realize their dream of home ownership.

Originally, the Federal Housing Administration (FHA), which was established back in 1934, was put in place to help offer a program that lessened the risk for lenders while raising housing standards across the country. This program provided many families the ability to purchase a home that previously did not have the ability to realize this dream. Through the years, FHA programs became available to help veterans, handicapped, low-income families and the elderly acquire a place to live, through renting and homeownership.

The Federal Housing Administration (FHA), was put in place to lessen the risk for lenders while raising housing standards across the country.

The Pros and Cons of FHA Financing

Buyers considering FHA financing for HUD homes must carefully weigh both the pros and cons of this financing option. While FHA loans can offer some excellent benefits, they do have a few drawbacks as well. By comparing the pros and cons and carefully considering their specific situation, homebuyers can best decide whether FHA financing is the best choice.

FHA financing brings with it several pros that can benefit those planning to buy government foreclosures. First, these loans offer lower down payment requirements than other loans do. Currently, buyers only have to come up with 3.5% of the sale price as a down payment, which is significantly less that the down payment amount required by most other financing options.

FHA loans offer more lenient credit standard, which benefits many homebuyers. Conventional lenders, especially in today’s economic climate, tend to be quite strict about credit issues. The leniency offered by the FHA makes it easier for those with less than perfect credit to qualify for the loan they need to purchase HUD homes. The FHA works even with those who have had bankruptcy discharges in their past, as long as the discharge is a minimum of a year old and the buyer has shown good credit after the discharge.

FHA loans offer many other pros for potential homebuyers to enjoy as well, including the ability to use gifts for closing costs and down payments. The FHA may offer funding for home improvement costs and no penalty is charged for prepayment, a very important benefit for subprime borrowers.

Although buyers find that FHA financing offers many excellent pros, a few cons must be considered as well. One big drawback for buyers is that the maximum loan amounts can vary, depending on the location of the buyer. Those needing larger loans may not be able to borrow the amount needed to finance the purchase of a HUD home. In some cases, buyers may find that FHA loans require a bit more paperwork than other loan options as well.

Next: FHA-rehabilitation loans