The FHA is more flexible than you might think, offering a complete set of mortgage loans to serve a variety of situations.
In 1986, rockers Steven Tyler and Joe Perry showed off their multi-faceted talent by providing guest vocals and guitar on the rap remake of "Walk This Way" by Run-D.M.C. This demonstration of versatility has only one equivalent in the mortgage world, and that's the FHA's set of mortgage offerings.
A loan for all purposes
You may think that FHA mortgage loans are strictly for first-time purchases of residential real estate. This isn't the case. FHA loans are great options for first-time buyers, but can be used for second- and third-time buyers and existing homeowners, too.
The entire set of FHA mortgage programs is governed by FHA underwriting guidelines. These dictate what the lender looks for in your loan application. Typical criteria include a clean credit history for the past two years, and sufficient income to cover the prospective mortgage payment and household expenses. If you have a bank account, the lender will also review your statements for the previous three months.
All FHA purchase mortgages require a minimum down payment, usually equal to 3 percent of the purchase price. Unlike most mortgages, however, the FHA is pretty flexible about where you get these down payment funds. You can receive a gift from a relative or employer, or obtain a grant from a down payment assistance program. Local government agencies and community organizations often have these designed specifically to work with FHA loans.
Refinance mortgages can be funded for up to 97 percent of the home's value, or 95 percent if you're cashing out equity.
Maximum loan limits
All FHA loans, for purchase and refinance, are governed by maximum loan limitations that vary by county. Just this year, these limits were overhauled to reflect the downward movement of real estate values more realistically. The new ceilings range from $271,050 all the way up to $729,750 in areas where the cost of real estate is very high. These values are based on percentages of the $417,000 conforming loan limit that applies to Freddie Mac and Fannie Mae-65 percent at the low end, and 175 percent at the high end.
FHA mortgage insurance
If you do fund an FHA loan, you'll have to pay premiums for mortgage insurance upfront and on an ongoing basis. Mortgage insurance protects the lender in the event that you default; this protection is what makes these low cost, low down payment loans attractive to these institutions. The upfront insurance premium is 1.5 percent of the loan amount, but it can be rolled into the mortgage debt rather than paid in cash. The ongoing premium is 0.5 percent of the loan amount per year, and this is paid in monthly increments with each mortgage payment.
With newly updated loan limits and a versatile selection of mortgage programs, the FHA is staking its claim as the rock-or rap-star of the mortgage industry.