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FHA Mortgage Loan

A mortgage loan insured by the Federal Housing Administration (FHA) is known as the FHA Mortgage Loan. The FHA insures loans for lenders and does not offer any loans. In case of a default by the borrower, then the FHA will pay the lender, lowering the risk component for the lender.

The FHA is a government agency of the Department of Housing and Urban Development (HUD) in the United States. It is the biggest government insurer of mortgages in the world. It provides mortgage insurance on multifamily, single-family, manufactured homes and hospitals to lenders (FHA-approved) throughout the United States.

It serves as an umbrella for lenders, allowing them to extend loans to borrowers with confidence. It allows newly married couples looking for their first home, fresh college graduates or people who are trying to complete their education and individuals who have a marred credit history or bankruptcy, to qualify for a loan.

FHA mortgage loans come with benefits for the borrowers too. The minimum down payment is comparatively less even at the recently renewed 3.5%, when compared to most other conventional loans which now require at least 10% down before they even consider. They even have refinance options and the credit requirements are not stringent as other conventional loans. It is the easiest way of availing a loan with only a little money down.

There is also a 0.5% annual insurance premium, which goes away once the borrower reaches a loan-to-value of 78%.

General details of an FHA mortgage loan

The borrower has to fulfill certain requirements in order to qualify for an FHA mortgage loan. While the basic requirements remain the same, there may be certain specific requirements based on the state and the lender.

 The FHA mortgage loan program covers single family homes, 2 unit, 3 unit and 4 unit properties as well as condominiums.

 The loan limits are based on statutory limits of the state.

 The beauty of the FHA mortgage loan is the minimal cash investment. The maximum loan-to-value ratio is about 96.5%, meaning the borrower has only to put down 3.5% to qualify.

 The borrower needs to have at least two years of consistent employment with increasing income during that period; although, in some states they even ask for a guarantee from the employers that the borrower would be employed for at least three years. The mortgage payment also cannot exceed 30% of the gross income (before tax).

 They may even ask for a guarantee that the borrower would stay at this home for at least 50% of the time.

 The FICO score of the borrower should be between 580 and 620 as well as less than two 30-day late payments. In case of foreclosure, it has to be at least three years old with perfect credit since then and for bankruptcy, two years old with perfect credit since that time.

 The home that is intended to be bought has to be appraised from a government approved appraiser.

One of the best things about getting an FHA mortgage loan is that if the borrower wishes to sell the current home, as long as the new buyer also qualifies for an FHA mortgage loan, the terms of the FHA loan can be transferred along with the same rate of interest that the current owner is paying. In case of an increase in interest rates, this can prove to be advantageous when the time comes to sell the house, giving the house a competitive edge.

Tags: bank, cash, credit, finance, government, Income, Insurance, interest rates, loan, money, mortgage, risk, tax

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