FHA Mortgage Loan

Government-sponsored mortgage loan programs aim to increase homeownership by making it easier and more affordable for some borrowers to qualify for a home loan. A mortgage loan insured by the Federal Housing Administration (FHA) is a popular choice for homebuyers who have an insufficient credit history or limited funds for the down payment and closing costs.

One of the primary functions of the FHA, which is a division of the Department of Housing and Urban Development, is to insure mortgage loans. The federally-backed insurance protects lenders from losses incurred if the borrower defaults on the mortgage loan. In return, lenders provide the loans to borrowers based on underwriting standards set by the FHA that are more relaxed than the criteria required by conventional loan programs. For example, FHA borrowers may finance 97 percent of the home’s value, which means the down payment can be as low as 3 percent.

There are several types of FHA mortgage loans including the fixed-rate loan, adjustable-rate loan, energy efficient loan, condominium purchase loan and fixer-upper loan. While FHA loan terms vary depending on the type of loan, some of the typical benefits are:

• Down payment may be 100 percent gifted.
• Loans are available to borrowers who are buying or refinancing their principal residence, which may be a single-family home or a one-to-four unit property.
• Limited fees, for example loan origination fees of 1 percent.
• Higher debt-to-income ratio (29/41) than would be acceptable for a conventional loan (28/36).
• Credit verification through utility receipts, car payments, or auto insurance payments for borrowers who lack a traditional credit history.

If a low down payment is your only reason for considering an FHA loan, it would be prudent to also consider some conventional low and no down payment loan programs. The private mortgage insurance required with some of the alternative loan products can be cheaper than the insurance costs associated with a FHA loan. A qualified mortgage professional can help you wade through all of the loan programs on the market and help you determine which product is best for you.