FHA Mortgage Loans

Since the 1930s, the Federal Housing Administration (FHA) has been helping families become homeowners with a set of loan programs commonly known as FHA mortgage loans. Despite the longevity and popularity of these loan programs, many would-be homeowners don't really know all they should about them.

The FHA is an agency of the Federal government that insures private loans that are issued for new and existing housing as well as loans approved for home repairs. Formed in 1934 by Congress, the FHA became part of the Department of Housing and Urban Development's Office of Housing (HUD) in 1965. Today acts as a buffer to lenders by reducing their risk in issuing loans as well as helping borrowers get amounts they qualify for.

FHA loans are not just for first time buyers and are available to everyone looking to purchase or refinance a home. If refinancing a home the current loan Does NOT have to be an FHA loan.

The most popular FHA home loan program nationwide is the 203(b) FHA home loan that only requires a minimum of 3% from the borrower and permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.

Today, FHA plays a critical role in financing for minority borrowers, first time home buyers, borrowers who have troubled credit history, and borrowers who have little money to put down on a home.

• In Fiscal Year 1997, 76 percent of FHA loans originated were first-time home buyers compared to 68.3 percent in Fiscal Year 1995 and 72.7 percent in Fiscal Year 1996.
• Loan originations for minority home buyers are increasing. The result is 29% of new homeowners in the past three years.

Funding

The FHA performs entirely through its self generated income and costs nothing to the taxpayer. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools and other forms of revenue.

Upside

The main advantage of having an FHA home loan is that the credit criteria for a first time borrower is 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.

Another advantage of FHA home loans are they 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 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 versus a conventional loan with 3% down.

Downside

It's been implied that the 1.50% FHA upfront mortgage insurance premium is a disadvantage. The amount being touted however only makes a very small increase to the borrower's monthly payment and is partially refundable when the loan is paid off in the first 3 years.

Use the FHA loan limit calculator to the right to check if you are within the FHA loan limits.

Additional FHA Resources

Types of FHA Loans
The Federal Housing Administration (FHA) has quietly supported the dream of homeownership for more than 70 years. Mortgage loans available through the FHA serve low- to middle-income homeowners and homebuyers.

How to Apply for an FHA Loan
FHA loans offer many advantages to homeowners who qualify for these low-cost mortgages. Before applying for one, it helps to know what the requirements are, and how to improve your chances of getting approved without problems or delays.

FHA Loans: Four Mistakes To Avoid
Strapped homeowners are crying "uncle" as home values dip and foreclosures continue. "Uncle" in this case would be "Uncle Sam" and his Federal Housing Administration (FHA) loans.

Are FHA Loans Too Expensive?
The Federal Housing Administration (FHA) insures loans to make them more affordable for Americans. But lately, banks that write the FHA-insured mortgages have added their own fees, making them more expensive and undercutting the whole notion of less costly FHA loans.

Additional External Resources

FHA
FHA refinance and mortgage facts, current rates and features.

FHA Loan
Information on getting an FHA loan, the different FHA loan types and programs, as well as guidelines.