FHA Loans

FHA loans are insured by the Department of Housing and Urban Development (HUD) and designed to make housing more affordable for first-time homebuyers and buyers with low to moderate incomes. Both fixed and adjustable rate FHA loans are available, and, in most states, FHA loans can also be used to refinance your current home.

FHA was established in 1934 to improve the construction and financing of housing and helped to reform the lending industry by spearheading changes in the way lenders structured loans. Some of those changes include the creation of low down payment, low interest rate loans that are fully amortized and include the mandatory collection of property taxes and fire insurance premiums. The FHA also created standards for qualifying buyers and the properties they would agree to insure loans against.

The FHA is not a direct lender--it does not actually make loans--it insures the lender against loss. The FHA appraises and approves the property, as well as the qualification of the borrower, and we loan the funds. The loan is then insured by the FHA. The FHA charges the borrower a Mortgage Insurance Premium (MIP) which we collect and pay to the FHA. The borrower has the option of paying the MIP in a lump sum up front at a discount, or in payments added to the mortgage over the term of the loan.

ADVANTAGES OF FHA LOANS:

1. Low down payment: With FHA insurance, eligible buyers can purchase a home with a down payment of little as 3% of the FHA appraisal value or the purchase price, whichever is lower.
2. 100% of the down payment can be a gift: FHA and VA loans allow the borrower to use 100% gift moneys for the down payment.
3. Non-occupant co-borrowers are allowed to assist in qualifying for the loan: FHA loans do not place restrictions on the occupant borrowers' ability to utilize a co-signer should they need help in qualifying.
4. Credit history does not have to be spotless to obtain financing through the FHA. Most conventional lenders require nearly perfect credit histories when borrowers make down payments less than 20%.
5. FHA loans are assumable under certain conditions. (Conventional fixed rate loans seldom are, however.)
6. The Seller is required to pay the Processing fee, the Document Prep Fee, and the Tax Service Fee in an FHA loan, defraying some costs for the borrower.