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
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
not have a problem obtaining FHA
. 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
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
is partially refundable in certain cases.
There are several notable FHA home loan
programs available as characterized
shared from FHA and HUD public informational programs