I attended a seminar last week concerning FHA loans. One interesting fact I learned is that about 30-40% of new loans today are FHA loans. Since this seems to be the way that the market is going, I felt it was reasonable to talk about these type of loans today. The guidelines seem to change quite often, so I will be addressing this topic again in the future as I find new information.
Since this is a big topic with lots of information, I will be spending the next few blogs on this same topic. So please stay with me if this doesn't concern you, we will be moving on to other topics in the near future. Now! Let's proceed...
Legal Disclaimer: I am a realtor, not a mortgage originator, so please use this information as a reference point only. Any questions you may have should be directed to your bank or mortgage broker as FHA guidelines change quite often. Monty Craig, Spoon Real Estate LLC, or any links here in this article are to be held not liable for this content.
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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 require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%. To learn more about debt ratios, please see the income section.
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 monthly payment and is partially refundable in certain cases. See the section on MIP refunds for more information.
Edited: for spelling.
Source: http://www.fhainfo.com/whatisanfhaloan.htm
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I hope this helps in you search for information, I do not claim to be an expert on mortgages, so any questions you have should be addressed to your mortgage broker, loan officer, or bank.
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Monty Craig, Spoon Real Estate LLC.
http://www.spoonrealestate.com/
812-376-0761
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