In good times and bad, there is always a segment of the population that is in the market to purchase a home. For those starting a family, or simply trying to establish themselves in the world, FHA home loans are a great option.

What is a FHA home loan?

The FHA home loan is a federal-assistance mortgage loan that was first introduced during the Great Depression. It was made to allow lower-income Americans to borrow the necessary funds to be able to purchase a home. It has since developed over time, and now aids people who cannot qualify for private mortgage insurance.

How does it work?

A FHA loan features insurance to lenders that the Federal Housing Administration will pay a borrower’s loan if the borrower defaults. It is this guarantee that makes lenders willing to give mortgage loans to borrowers. The FHA further assists borrowers by asking for just a small down payment of 3.5%. In exchange for this, the FHA charges borrowers a fee, a fee for every monthly payment, and requires the borrower to pay a mortgage insurance premium of 1.5%. It is these collected funds that the FHA uses should the borrower default on the loan.

There are, however, limits on the amount a borrower can get. This used to be a problem in areas such as Southern California, where the amount of a typical San Diego Mortgage was well above the national average. But in the last few years, the limits have been adjusted to reflect the sales prices in any particular region.

Eligibility for FHA loan

In order to be eligible for a FHA loan, the borrower will have to have a reasonable debt to income ratio, along with a decent credit score. Generally, a debt to income ratio of at least 29/41 is required. There is, however, no income limit, so as long as the debt to income ratio is met, almost anyone with an income is eligible to get a loan.

So for people wishing to purchase a home, but who do not have the normal means to do so, the FHA home loan is definitely a good option. Read more about popular loan programs at MySanDiegoMortgage.com.

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