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FHA loans

Federal housing administration or FHA is the backbone of the federal government as far as public welfare schemes are concerned. This department has to its credit a slew of schemes aimed at the betterment of general public. FHA loans are one of the many housing schemes of the federal government. The department was formed in 1965 as a support system to the government inorder to plan and execute welfare schemes.

FHA loans, or loans to the economically weaker sections, are designed in such a way that the people who avail of such loans are not in too much of trouble as far repayment is concerned. These loans are based on the simple principle of making housing a reality for the economically weaker section; who might otherwise find difficulty in getting housing loans from the private sector. The benefits of these loans are that the down payment option is much lower than in conventional loans, and rate of interest is also quite less than others. The department disburses the loans directly and all documents and related formalities are taken care of by the department itself. Hence, the people who use these loans are normally asked to submit documents related to their income, bank status and mortgage related information.

Like normal banks, these loans are also mortgage loans and monthly installments have to be paid as is the case of other loans. Even individuals with less credit score or those having a history of bankruptcy are also given loans as long as they can prove that they have an income to support the monthly re-payment.

Like in most cases of welfare schemes, there are a few disadvantages connected with these loans. The highest amount that a person can take as a housing loan is much lower than normal loans, as disbursed by banks or lending institutions. This is because these loans are specifically designed for lower income groups and hence the budgeted amount is also kept similarly low.

Another big disadvantage is the requirement of insurance to cover mortgage payments. This is actually a big impediment and acts as a negative point to this scheme. While this scheme aims to make housing loans affordable to poor citizens, the presence of the insurance policy as a cover against default makes a subtle point about the department not trusting the loan seekers fully and making itself safe by way of the insurance.

Closing costs for FHA loans are also normally less than that of conventional loans.

There are some documents that may be required while applying for such loans. These are documents for income proof, tax returns filing statements and proof of funds for down payment and closing costs.

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