FHA Secured Loans
In 1965 the Department of Housing and Urban Development (HUD) was formed. Within HUD operates the Federal Housing Administration (FHA), which has the primary responsibility for administering the government home loan insurance program. This program allows a first time home buyer who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.
The most popular FHA home loan program for a first time home buyer is by far is the 203(b). This is your standard fixed rate loan for 1 – 4 unit family owner-occupied houses and only requires a minimum of 3.5% from the borrower. This loan also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.
The main advantage to an FHA home loan 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 had a few credit problems or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans 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 monthly mortgage insurance premium is cheaper for an FHA loan versus a conventional loan with 3% down. Finally, FHA loans may require less income to qualify as they will exceed the Conventional debt ratios of 28/36%.
Many people make the mistake and assume that FHA loans are only available for first time home buyers. This is not true. FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home. If refinancing a home the current loan DOES NOT have to be an FHA loan.
The greatest disadvantage of FHA home loans is that FHA limits the loan size that a borrower can borrower. 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 monthly payment.
To learn more about FHA home loans, or for a FREE, no-obligation analysis, apply now to speak with a licensed mortgage banker.