How FHA Loans Work

FHA (Federal Housing Administration): Insured by the Department of Housing and Urban Development, these loans allow a down payment as low as 3.5%. There is monthly mortgage insurance paid as part of the loan payment and also an upfront premium that is financed as part of the loan. FHA rates tend to be lower than conventional rates, but the mortgage insurance is more costly, so this product is usually used by home buyers with a credit profile that does not meet conventional loan requirements. As with conventional loans, the basic loan limit is $453,100 and the “high balance” limit is $679,650, with higher loan amounts for 2-4 unit properties. May be used for owner-occupied homes only.

 

Benefits of FHA Loans

 

Easier to Qualify – because they’re backed by the federal government lenders are more likely to give you the kind of loan that you need.

Low Down Payment – FHA insured mortgages only require a 3.5% down-payment which makes it easier for people to own homes. Additionally the 3.5% can come in the form of gifts, unlike many other loan programs.

Lower Credit Borrowers Qualify – because FHA insured loans are backed by the government those with a poor credit history have an easier time getting this kind of loan.

Better Interest Rates – with the backing of the government these loans typically have a better interest rate than most traditional mortgage loans.

Better Home Stability – the FHA has programs designed to help homeowners keep their homes during hard times. They will work with you to help your home from falling into foreclosure. Always try to work out problems with your lender before the situation becomes dire.