FHA Loan Info

From the Superpages.com

Answering the question of what is an FHA loan can be very important to first time homebuyers, nontraditional buyers, or those buyers with poor credit seeking to buy a home. The Federal Housing Administration (FHA) insures mortgages, making it easier for families that would normally be excluded from purchasing a home to purchase a home. FHA helps to make home buying during a recession easier for people. It also has programs to finance military housing and homes for veterans.

Common FHA Loans

The fixed rate mortgage is the most common FHA program. The FHA fixed mortgage is open to anyone using the property as a primary residence. FHA will not finance investors. The fixed mortgage program protects lenders against buyer default. A lender underwrites a loan, requiring the buyer to meet certain criteria defined by FHA. If the borrower can meet these requirements, the FHA insures the loan that the lender issued.

Benefits of an FHA Loan

FHA fixed mortgage loans often require lower down payments than conventional mortgages – as low as 3 percent, compared to as much as 10 or 20 percent for conventional mortgages. This means you can borrow as much as 97% of the cost of the property.

If there is enough equity in the home at the time of purchase, the FHA will also allow the borrower to finance many of the closing costs associated with purchasing the home. Closing costs can range from 2 to 10 percent of the purchase price of the home, depending on the lender, so having the option to defer these payments and pay them off over time makes it easier for buyers to purchase homes.

Lender fees are also limited in FHA fixed mortgage loans. For example, the loan origination fee- generally one of the largest fees associated with a mortgage- is capped. If a borrower selects an FHA loan, the lender may not charge more than 1 percent of the amount of mortgage for the origination fee.

Who Can Use an FHA Loan?

HUD sets limits on the maximum amount you can borrow under an FHA loan. These limits vary by state and can be found at FHA Loan.com. The limits ensure that FHA loan programs serve families with low to moderate incomes. Borrowers must also meet certain other qualifications. For example, borrowers must have a maximum of 29 percent debt to income ratio to qualify for an FHA loan. This figure is calculated by dividing the total amount you will pay on your mortgage each month by your gross monthly household income. If the result is larger than 29 percent, you cannot qualify for an FHA loan.

FHA loans also require that the borrower pay mortgage insurance, since most borrowers put down a low down payment. FHA loans charge .5 percent of the total loan amount each year for mortgage insurance. Once you have established enough equity in the home that the loan value is 78 percent or less of the total worth of the home, as long as you have paid the premiums for five years, you will no longer need to pay this additional insurance.

Qualifying for an FHA Home Loan

Once you have researched what is an FHA loan and determined it is right for you, you can apply for an FHA loan through an FHA approved lending institution.