Introduction: FHA Housing Loans and Buying Down

It should not surprise anyone that the rates for FHA housing loans have gone down to such a record low. This is why a lot of people really want to take advantage of these mortgage offerings right now. This is why for those who are considering purchasing a mortgage loan but cannot afford the high costs of traditional loans right now, it is the perfect time to apply for the FHA program. One can simply research about the FHA offerings that apply to one’s area and sift through all these offers to find the one that has the lowest interest but is also perfect for one’s financial situation.

One might think about the reason why the FHA offers are so significantly lower than other usual housing loans. Well there is a very good and easy explanation. The FHA or the Federal Housing Administration is a government funded organization geared towards helping the middle to low income citizens get homes. Now some might be led to believe that the funds for these loans come from government tax which is why the loans can be given away without that much risk protection measures such as high interest rates and large down payments. That is incorrect. The money actually comes from private lenders. What the FHA really does is it insures the loan. This insurance will cover the mortgage if the borrower chooses to default. In this way, private lenders who offer FHA housing loans can give them away with minimum risk.

In this time of economic hardship, the government took action and created the Bailout fund. This injected funds to the FHA and enabled even lower costs and more accessibility for those many people who are in dire financial straights.

The FHA interest rates, though much smaller, will still vary depending on the borrower’s credit score since it will still factor in the risk element from the buyer. This is similar to the process of conventional loans but there is the advantage that a person has in the FHA. This is the advantage of buying down. The borrower can actually lower the initial interest that is given to him or her and then after a few years, the interest rate can go down to zero.

If the borrower wants to buy down, then the fee through discounts points will have to be paid. These discount points are much cheaper than the borrower’s interest rate and it is usually treated just as a prepaid kind of interest. So in twenty years to pay mortgage loan, one can lower the FHA interest to six percent. Such a thing will show that the borrower was able to make the interest rates in the first year that was set at four percent and then five percent on the following year and finally six percent on all the succeeding years.

With the FHA housing loans program, one is also offered the chance to buy down one’s interest rates. One will pay the discounted points along with the lowered interest of the mortgage.