What Are FHA Commercial Loans?

Posted by Nick Niesen on October 29th, 2010

FHA Commercial Loans are government guaranteed or sponsored loans that are offered by financial lenders and guaranteed by the FHA or Federal Housing Authority. FHA commercial loans are available for buyers with limited cash or credit problems.

Borrowers are required to qualify for the loan and must go through an application process and subsequent approval. Along with other pertinent information, potential borrowers must provide the following: description of the property, loan amount, and a brief description of the intended purpose of the property.

With an FHA loan, the financial risk to the loan is assumed by the FHA, not the borrower or the lender. Plus, the borrower only needs to put down a minimal amount of money and someone other than the borrower can pay the closing cost.

The FHA or Federal Housing Authority provides insurance on mortgage loans that are made through FHA-approved lenders. These lenders can be mortgage companies, banks, or credit unions. The insurance on an FHA loan protects the lender against financial losses. Such losses might result if the borrower defaults on the loan and fails to make his monthly payments.

FHA loans are typically given to individuals with low or moderate incomes. Such individuals often have difficulty securing such loans and the FHA provides the insurance needed to secure the loan. FHA commercial loans make it possible for those without high income to invest in property or commercial projects.

FHA commercial loans typically involve a lower down payment expectation than that found with conventional loans. Additionally, no private mortgage insurance is required since the FHA provides a loan guarantee. Commercial loans provide the funds to keep a project running smoothly and profitably. FHA commercial loans are available for those who would not otherwise qualify for conventional loans.

It is still important to shop around for the best rates for FHA commercial loans. The FHA does not set the interest rate. The individual lenders set the rates. Therefore, if the borrower shops around, he might be able to obtain a more agreeable interest rate.

If the borrower?s credit history and credit score are not the best, he would find it more difficult to obtain a conventional loan. Although FHA loans do require that the borrower has a fair credit score, it does not need to be flawless. Limits are set for the amount of money that can be borrowed. Plus, the borrower needs to have a reasonable debt to income ratio. FHA commercial loans make it possible for lenders to offer money to people with less than stellar credit histories, while protecting the lender against risk.