March 26, 2019
What is an FHA Loan?
Conventional home loans aren’t for everyone. While generally it behooves a borrower to seek out the customary route to homeownership—which is why it is in fact the customary route—lenders and government agencies have gone to great lengths to ensure that the dream of homeownership is available to more than only above-prime borrowers with requisite down payments to put toward a property.
Chief among the government agencies working toward this end is the U.S. Federal Housing Administration (FHA for short). While FHA loans are issued by private banks and credit unions, the FHA has provided them with the incentive to do so: should the borrower of an FHA loan fail to pay the loan (and gain fee simple title to the property in the doing), the FHA will remunerate the lender in their stead. So where in the normal situation a lender would be unwilling to approve a loan application, now they can quite literally afford to.
The FHA is an outgrowth of the Great Depression, established in 1934 in response to the dire housing market. At the time it was normal to be able to secure financing for only half a home’s value, and to find a balloon payment due at the end of a mere three to five years.
With an FHA loan, a borrower may manage to get approved despite problems in their credit history. They can make a low down payment—as low as 3.5 percent—despite having a relatively low income. Moreover, FHA loans make it easier to make down payments and closing cost payments with monetary gifts—from one’s parents, for example. And as soon as two or three years following a bankruptcy or foreclosure, FHA loans enable a potential homebuyer to “reset” by permitting them to qualify to borrow once again.
It is important to note, however, that one is required to have a reasonable debt-to-income ratio in order to qualify for an FHA loan. And one is more likely to end up paying a great deal more in interest over the lifetime of the loan than one would have with a conventional loan accompanied by a substantial down payment.
Title defects can occur in any property transaction, no matter what sort of loan one has qualified for. We at Topouzis & Associates, P.C. are experts at ferreting these defects out and disposing with them in advance of closing. We take pride in the great amount and quality of experience we bring to the closing table in Rhode Island, Massachusetts, and Florida. Contact us if you want a partner in your property closing—one who makes everyone involved feel like family.