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FHA 203b

FHA’s 203b loan is the basic loan package for the purchase of a home.  It’s the loan that most first time home buyers turn to when they take advantage of FHA’s loan programs.  The 203b derived its name from the code section in federal housing law where its terms are laid out.

You can take out a 203b loan to purchase a home that has 1-4 living units in the structure.  The down payment required is 3%; unlike conventional loans, the down payment may be a gift from a family member; a grant from another government program or perhaps aid from a local non-profit agency.  Your FHA loan can include financing for the loan closing costs and the initial insurance payments; all you need to do is develop a source for the down payment.

Many of FHA’s first time home buyers seek out assistance from a state or local housing program to assist in raising the money for the down payment.  You should check with your city and/or county governments to see what programs are available for home purchase assistance.  They won’t be hard to find; virtually every state provides money for housing assistance programs, which is usually passed through local agencies.

The FHA does not actually loan money; it insures loans that are provided by a partner bank or mortgage brokerage firm that works in partnership with the FHA.  Probably the wisest course of action is to determine how much you want to borrow and then shop for the lender with the best rates.  When you contact the lender, tell them you want an FHA loan.  You’ll be eligible, even if your credit record has a few blemishes.

If you have an excellent credit record you can still find loan packages that finance 100% of a home’s sale price.  However you won’t find any such loan that has a fixed payment schedule like the FHA 203b home loan.  All those teaser loans for “no down payment!” also have teaser interest rates that go up dramatically after a short period during the beginning of the loan’s life.  An FHA 203b loan is a safe option – protecting you from loan default due to rising monthly payments.