What is a HUD FHA Loan?

Most people do not know that a HUD FHA Loan is not really a government loan.

A HUD FHA Loan is not a loan by HUD or FHA. It is an INSURED loan by FHA. FHA provides FHA mortgage insurance on loans made by FHA-approved lenders. They are the largest insurer of mortgages in the world.

FHA mortgage insurance provides lenders some protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default.

Of course, when the homeowner defaults the FHA house will most likely become a HUD home for sale. Without FHA mortgage insurance we would not have HUD homes for sale.

FHA insured loans are easy to get because they don't have strict underwriting guidelines like conventional loans. You can have lower credit scores and only 3.5% down payment. Some people think that insured FHA house loan is only for first time home buyer. You don't have to be a first time home buyer to qualify for a loan on a FHA house.

Another misconception about homes insured with FHA is they are shabby and in less than desirable neighborhoods. You will homes insured by HUD FHA Loans in some of your best neighborhood. A HUD FHA Loan is a type or way of financing a home, not type or quality of construction of a home.

Who pays for the FHA mortgage insurance? The cost of the mortgage insurance is passed along to the homeowner. Part of the cost is rolled back into your mortgage and also a part is in your monthly payment.

This enables FHA to be the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. Although there are a lot of HUD repo homes, if FHA didn't exist there would be a lot of Americans who couldn't afford homes.

Some of the advantages of insured HUD FHA loan are:

1. You can get a loan with lower credit scores than a conventional loan.

2. Income-to-debt ratios are generally higher with FHA insured loans.

3. Seller can contribute up to 6% of selling price towards the buyer closing costs. HUD will not contribute towards down payment assistance of HUD owned properties.

4. FHA is more lenient than conventional lenders with credit issues such as bankuptcy.

5. You also may save on closing costs because FHA limits how much lenders can charge for closing costs.

6. The interest for a insured HUD FHA loan may be lower than conventional for credit challenged buyers. Because the HUD FHA Loan is insured by FHA, FHA Approved Lenders are more willing to loan to people with less than perfect credit.

There are certain advantages for buyers using insured HUD FHA loan for the purchase of HUD homes for sale.

1. Use can use the appraisal that HUD has already done. This could save you $300-$500. The FHA Appraisal can not be more than 6 months old.

2. You can include the Repair Escrow in your mortgage. This will help to do the needed repairs without any additional cash outlay from you.

3. It is easily to get your earnest money back if you use an insured HUD FHA loan.

4. It is easily to qualify for FHA 203 K rehabilitation loans.

Only owner-occupant buyer can use an insured HUD FHA loan to purchase a HUD home. They are not for investors.

With the recent turmoil in the mortgage market and the glut of home foreclosures, it has become harder to get a conventional loan. This has caused an increase in the popularity of the HUD FHA Loan.

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