Debt and Bankruptcy

How FHA Loans Can Help You?



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A loan from the Federal Housing Administration can help you buy a house if other loan options are not available to you. Say you have bad credit but you want to buy a house. The lender you approached is not willing to give you a loan to buy the house because of your bad credit. The FHA can help you buy the house you want by guaranteeing the loan, ensuring that it will be paid back to the lender even if you default for any reason. There are several advantages that an FHA home loan can offer you.

An FHA loan has fixed interest rates; they do not fluctuate according to market conditions and they are not subject to the tender mercies of the secondary mortgage market. The requirements for FHA loans are also not as strict as they are for other types of mortgages, such as the dreaded adjustable-rate mortgage. The subprime mortgage crisis of 2007 that sparked the recession of 2008 was largely caused by ARMs; since the interest rates were allowed to follow the rates of the secondary mortgage market after two or three years of low interest rates, borrowers quickly began defaulting on their loans.

FHA loans are easier to pay off than ARMs and even other fixed-rate mortgages because the principal and interest of the loan are guaranteed by the federal government. This guarantee usually takes the form of mortgage insurance, thus making you the borrower much more attractive in terms of risk to the lender. Lenders can seem preoccupied with risk, but after all that is the nature of the mortgage business. Lenders need to know who is trustworthy and who is not when it comes to advancing sums of money. With the government insuring the home loan by means of the FHA, the risk of default is removed from lenders, which virtually ensures that the lender will approve your loan application.

The above notwithstanding, there are some red flags that may prevent you from even getting a home loan from the Federal Housing Administration. If you have had a bankruptcy or foreclosure in your financial history, the FHA requires that you have a perfect credit history at least two years from the date of your last bankruptcy and three years since the date of your last foreclosure.