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The FHA itself never provides any loans to the borrowers. In case of FHA loans, the loan amount is insured by the federal government, thus providing assurance to the lender and also minimizing the risk of defaulting. As a result, lenders provide these loans at a very low interest rate in comparison to conventional loans provided by private lenders. FHA loans can only be provided by lenders who have been approved by FHA. Borrowers can apply for a FHA loan in order to buy properties that include single-family houses, 2-4 unit properties, condominiums and modular homes. However, one cannot use these loans for buying any commercial properties, hotels, private clubs or boarding houses.
These types of loans are primarily available for borrowers with good credit history. Requirements include a stable income for at least 3 years and a creditable employment history. However, people with bad credit history can also apply for a FHA loan provided they can prove that they have managed to meet all financial obligations in the past and their financial crisis is just a temporary situation. FICO scores are never a requirement in order to apply for this loan. The borrower must be able to make a 3 percent down payment and also bear the 2.25 percent closing costs. In addition, any other costs associated with the title including the title search and title insurance for the home should be borne by the borrower.
Considering the ever rising real estate prices, the FHA has increased the mortgage limits. In case of high-cost areas, the loan amount is equal to $362,790. In case of low-cost areas, the loan amount approved under a FHA loan program is $200,000.
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