FHA Home Equity Loans
FHA home equity loans are loans made by private lenders insured by the Federal Housing Administration. The borrower uses the equity built up on their home as collateral for the loan.
Reasons for Acquiring an FHA Home Equity Loan
An FHA Home Equity Loan is ideal for low-to-middle income families for a number of reasons:
- The rate of interest on equity loans is much lower than unsecured loans
- The rate of interest is often a fixed rate applied for a shorter term, as it is usually tied to a one time lump-sum loan.
- Mortgage brokers are far more likely to provide a loan with collateral, as it protects the lender from financial loss of a loan default.
Criteria for Qualifying for an FHA Home Equity Loan
Because the Federal Housing Administration itself does not offer loans, the potential borrower must seek out mortgage brokers who will assess the borrower's eligibility for obtaining the loan. The assessment includes the following criteria:
- A steady employment history of at least two years with the same employer.
- A strong credit report, including a history of past payments showing no more than two late payments for the last two years.
- The mortgage payment qualified for should be approximately 30% or less of your total monthly gross income.