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FHA “Personal Loans”? A Reader Question

December 18, 2014

087A reader asks, “My credit scores a 654 i have a car loan at 22000 where i pay 328 a month and have a debt collector who i’ve already paid but still shows on my credit report. Is there any way I can get a 5000 dollar loan?”

It sounds like this reader is asking whether the FHA loan program permits a borrower to apply for a personal loan guaranteed by the FHA. Or perhaps the reader is asking if it’s possible to apply for an FHA home loan for an amount far smaller than it would take to purchase a home.

In either case, the answer is no. FHA loan rules do not permit the FHA single family home loan program to be used as a personal loan–FHA guaranteed home loans are strictly for the purchase or refinance of a home. FHA loan amounts are determined in part by the sale price or appraised value of the home, and partly by the amount of add-ons or other extras included in the loan amount.

The FHA loan program doesn’t permit the borrower to use an FHA mortgage loan as a personal loan (cash out refinancing is possible, but the same rules apply–the entire amount of the home’s appraised value would be considered when it’s time to determine the loan amount) but that does not mean that a participating FHA lender might not be able to offer a personal loan outside the FHA loan program.

Such personal loans would depend strictly on the lender’s rules and standards, assuming such loans are available from that particular lender. Borrowers who seek personal loans would not be applying for an FHA loan in any way. As mentioned above, cash-out refinancing loans are possible and may even offer the same amount of cash or at least in the ballpark–but the borrower would need to discuss the cash out refinancing loan with the lender to determine what uses the proceeds from that loan (once the original financial obligation has been paid in full) might be approved for.

Do you have questions about FHA home loans? Ask us in the comments section.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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