About the FHA*

The Federal Housing Administration (FHA) was formed in the aftermath of the Great Depression to create a stable mortgage market and support homeownership. Decades later, the Department of Housing and Urban Development (HUD) was established through the Civil Rights Act of 1968 to ensure Americans have access to affordable housing. With the collapse of the private mortgage market and our nation’s ongoing economic recovery following the Great Recession, the importance of HUD has never been more apparent. Care must be taken to protect FHA’s ability to facilitate safe, affordable mortgage financing to American families.

One of the most popular FHA home loan program for a first time home buyer 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 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 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. 

Note- Content shared from FHA and HUD public informational programs