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2014-12-08 16:54:22
What is a FHA Loan?
Continuing our weekly series, we take an in-depth look at conventional loans.

 

In the first of a continuing series, we take an in-depth look at the four most common types of home loans. Today, we will look at FHA loans.what-is-an-fha-loan01

 

Background

The Federal Housing Administration (FHA) was created in 1934 in response to defaults and foreclosures that took place in the early years of the Great Depression.  Today it is the division in the U.S. Department of Housing and Urban Development (HUD) that administers the FHA loan program.  The FHA does not lend money; rather it insures lenders against foreclosure losses on residential mortgages.  This insurance lessens the risk assumed by lenders in making high-balance, low-down-payment loans at market rates of interest.  The FHA is the only governmental agency that is entirely self-funded with mortgage insurance premiums (MIP) charged to borrowers.

 Loan-Type-FHA_1

Click to view entire List of Home Loans

 

Pros

A down payment of 3.5% typically makes FHA loans one of the easiest types of loans for which to qualify.  This is the program of choice for borrowers who don’t have savings for a larger down payment. Individuals who cannot qualify for private mortgage insurance because they have low-to-no credit or who have recently experienced an adverse event, like a foreclosure, may still qualify for an FHA loan.  FHA loans are also assumable by your homes future buyer, which is a benefit if interest rates rise, because you can pass on your low rate to the next owner.

 

Cons

To fund FHA financing, borrowers are charged two types of mortgage insurance premiums. The upfront premium is paid at closing and may be financed into the loan.  The second is a monthly amount that is collected in the payment.  In addition, an FHA-approved appraiser must be used and the home must meet certain conditions.

 

Financing Options

There are a number of financing options available through the FHA.

  • Transaction Types: purchase, refinance, streamline refinance, and renovation
  • Property Types: Single-family residences, 2-4 units, PUDs, condominiums, manufactured homes, and homes that HUD has repossessed (“HUD Homes”)
  • Interest Rate Types: 15- and 30- year fixed-rate and 5-year adjustable rate
  • Occupancy Type: Primary residences only
 
 
 
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