Many people find it quite difficult to be able to purchase their own home. This may be especially true during the current economic recession that left many people jobless while still being in debt. My friend Becky was looking to buy a home but she was earning minimum wage working as a bartender. She also discovered that mortgage guidelines were tightening up and banks or lenders generally would prefer higher credit scores or higher down payments. So what was she to do? She still wanted to buy a home but she needed some program or back-up to secure her place as a borrower even with her limited income. Basically she had to give the bank some kind of guarantee. That was when she discovered FHA mortgage insurance.

Becky learned that she could have better chances of buying a home if the loan is backed by the FHA mortgage insurance. Generally the FHA would have the option of insuring her loan to your lender in the event of your default. Of course, the guarantee came from the government so the down payment requirements would also be minimized. The idea would be to make her loan more attractive to banks and buyers alike. The way FHA worked was almost the same as in the traditional lending industry. Becky wanted to buy her house through the FHA so she paid the insurance premium every month. What Becky did not quite realize was that the insurance was designed more towards preventing foreclosure by the lender. Of course the insurance would not cover herself but only the lender. It may be required for you to know how much you might need to spend in order to help determine your housing budget.

Becky’s mortgage insurance made it easier for her to get her loans approved. She also had to pay a low down payment compared to conventional loans. Basically Becky was creating an environment where lenders would be more open to offering her more options when it came to buying a home. This may be because the government was guaranteeing the principle amount and the only risks banks or lenders would have to take would be on the interest. Of course, this probably would not mean that banks would automatically allow her to take up a home loan with them. There were still more procedures and various steps for her to follow prior from their approving your loan application. As a young home buyer Becky definitely benefited from the program. She only had to pay a fraction of the amount she would have to pay in order to secure a purchase. The loan officer was also quite lenient when it comes to Becky’s debt ratios, down payments and many other requirements.

Becky would probably be advised by many experts to go with the same bank she had her accounts with if she ever intended to refinance FHA loan. The procedures would generally be the same. Becky had to be fully familiar with the concept of having her loan insured by FHA. The premium amount she had to make every month was based on the down payment she put on her home. Of course, the higher her down payments were the higher she should be. She had to establish a budget to ensure that the amount she would have to pay monthly would definitely be overcome. Becky also had to work rather closely with her lenders. This may be because home loan insurance may not be required and sometimes they must take into account a larger amount of loan money with the pre-financed mortgage payments.

In the end, Becky finally managed to find a loan to help her buy her very first home. She was very excited that she could buy her own home with the help of the Federal Housing Administration (FHA).

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Category: Finances
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