FHA Loans
Time for a history lesson
In 1937, under an act of Congress, the Federal Housing Administration
was established to provide American families with a unique
opportunity to become home owners. Formerly, a home buyer's
options were only limited to short term loans ranging from
1 to 5 years in term. Borrowers had to put as much as 40 to
50 percent down on the property and pay off the entire loan
balance by the end of the term.
FHA revolutionized the mortgage industry at the time by offering
the 30 year mortgage and made the possibility of home ownership
available to Americans nationwide. Throughout the years, a
variety of programs have spawned from this revolution to make
home ownership easier, more affordable, and attainable to
Americans.
Though HUD is not a direct lender, it is the Department's
responsibility to maintain an ongoing program designed to
monitor the overall quality of loans originated from HUD approved
lenders. HUD is an insurer of loans, protecting lenders against
potential losses suffered from default and foreclosure. The
"mortgage insurance premium" collected from the
borrower on each loan helps defray costs associated with this
program
FHA, also known as the Federal Housing Administration, operates
under the control of the Department of Housing and Urban Development
(HUD) and has the primary responsibility for administering
the government home loan insurance program. This program allows
buyers who might otherwise not qualify for a home loan to
obtain one because the risk is removed from the lender by
FHA.
The most popular FHA home loan program nationwide is the
203(b) FHA home loan (not to be confused with the 203(k)
loan) that only requires a minimum of 3% from the borrower
and 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 a FHA home loan is that the credit
criteria for a borrower are not as strict as FNMA or FHLMC.
Someone who may have had a few credit problems 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 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. 100%
of the down payment and closing costs can be gifted.
The greatest disadvantage of FHA home loans is the upfront
mortgage insurance premium (MIP). On a 30 year FHA home loan
that equals to 2.25% of the loan amount (2% for a 15 year)
in addition to the 0.5% annual renewal premium that a borrower
will pay for the life of the loan. In addition, FHA limits
the amount a borrower can borrower.
For more details on this program, please contact
us or prequalify
through our Web Application
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