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 family owner occupied houses and only requires a
minimum of 3% 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 a 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 verses a
conventional loan with 3% down. Finally, FHA loans may may require
less income to qualify as they will exceed the Conventional debt
ratios of 28/36% as their standard is 29/41%.
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 Please see the link for
FHA
Loan Limits in your area. 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 month
payment and is partially
refundable in certain cases.
There are several notable FHA home loan
programs available as characterized below.
Click on the title to learn more about that program:
