In 1934, the U.S. government created the Federal Housing Administration (FHA). The agency is charged with improving housing conditions for Americans. It does this by providing mortgages (loans for buying homes) and home-refinancing options for American home owners. The agency’s most common offering is the FHA loan to people who are buying a home for the first time and are looking for a home mortgage.
Approximately three-quarters of the FHA’s financing is awarded to people who are buying a home for the first time. Given the high prices in the real estate market, young adults who are considering buying a home for the first time are often daunted and intimidated by the availability (or dearth) of financing options. The idea of having to pay such a large chunk of money every month in home mortgage payments for 30 years (or more!) is quite frightening to many people.
To help these people, the FHA provides information, advice, and financing for these first-home mortgages. As with any government agency, there are a myriad of rules to navigate. One of the most important rules is that an individual may have only one FHA loan at any moment in time. People who are paying for one home and wish to purchase a second home cannot do both with FHA loans. Naturally, first-time buyers aren’t affected by this rule because, by definition, they do not have an existing mortgage.
In general, all FHA borrowers must secure their home mortgage by making a down payment of 3% of the home’s entire purchase price. This is true for first-time buyers as well as seasoned real estate investors. The only exception is for victims of disasters who, upon losing their homes in a natural disaster, may receive financing to purchase a new home without making any down payment.
After paying the 3% to secure the loan, you will be concerned with the interest rate governing your monthly mortgage payments. The rate is usually around six or six-and-a-half percent, but this varies with the circumstances of each individual borrower. Most notably, the FHA considers potential homebuyers’ credit score. Of course, the amount of the requested mortgage, whether or not a co-signer is on the mortgage, and the type of housing you want to purchase (e.g., whether it is a manufactured home) will also influence your interest rate in an FHA mortgage.
If you’re relatively new to the real estate market and would like to purchase your first home, but you are uncertain as to how to begin the process, you may want to begin the process by speaking with someone at the FHA. FHA representatives (or mortgage brokers who regularly work with the FHA) can help you understand your eligibility and the mortgage application procedures.