About The FHA Mortgage

About The FHA mortgage

FHA Mortgage loans have been helping residents since 1934.

An FHA Mortgage Lender can offer you a better loan including:

  • Lower down payments.
  • Lower closing costs.
  • Easier credit qualifying.
  • Streamline Refinancing.

In 1965 the Department of Housing and Urban Development (HUD) was formed.  Within HUD operates the FHA which is short for the Federal Housing Administration), which has the primary responsibility for administering the government FHA mortgage insurance program. The FHA mortgage program allows a first time home buyer with bad credit or even no credit who might otherwise not qualify for a FHA mortgage because of a bankruptcy or foreclosure to obtain an FHA mortgage because the risk is removed from the FHA mortgage lender by FHA who insures the loan for the private lender.

The most popular FHA mortgage program for a first time home buyer is by far is the 203(b).  This is your standard fixed rate FHA mortgage loan for 1-4 family owner occupied houses and only requires a minimum of 3.5% down payment from the borrower.  The FHA mortgage will also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency. In addition, the seller paid closing cost up to 6% of the sales price.

The main advantage to a FHA mortgage is that the credit criteria for a first time borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have bad credit or even no credit  score can qualify using FHA compensating factors and  will have an easier time qualifying for an FHA mortgage loan.

Also, FHA mortgages are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller or lender must pay for part of the “traditional” closing costs (called non-allowable costs) while a borrower’s allowable costs can partially be wrapped into the loan. The FHA monthly mortgage insurance premium can be cheaper for an FHA mortgage verses a conventional loan with 3% down.  Finally, FHA debt to income ratios may require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%.

Many buyers make the mistake and assume that FHA mortgage loans are only available for first time home buyers.  This is not true.  FHA mortgages are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home.  If refinancing using an FHA mortgage, the current loan DOES NOT have to be an FHA mortgage.

The greatest disadvantage of FHA mortgages is that FHA  loan limits the loan size that a borrower can borrower   Please see the link for FHA mortgage Limits in your area.  Others may try and convince you that the FHA upfront mortgage insurance premium (MIP) is a disadvantage. However, this amount makes just a very small increase in the borrower’s month payment and is partially refundable in certain cases.

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