An FHA loan is a mortgage loan that is insured by the Federal Housing Administration. FHA home loans are not made by the government but are originated by approved FHA mortgage lenders.

FHA home loans are originated similar to other mortgage loans but have some added costs to cover the mortgage insurance from the Federal Housing Administration. The mortgage insurance premium is paid at the closing and may also be included in the monthly mortgage payment depending on the conditions of the loan request.

The main advantages to a FHA home loan are the more lenient credit qualification requirements and the lower down payment requirements. FHA loans used to purchase a new home can be obtained with as little as a 3.5 percent down payment. In general, the credits scores needed to qualify for an FHA loans are lower than those found with conventional or traditional mortgage loans. Home loans borrowers that do not have a traditional credit history may also qualify for an FHA home loan. The credit qualifications for an FHA loan change from time to time and may vary from mortgage lender to mortgage lender.

The real value of FHA home loans is that they allow home buyers that might otherwise not qualify for a home loan obtain a loan because the insurance provided by the FHA to the approved mortgage lender protects their downside risk. Without the mortgage insurance, mortgage lenders are not likely to offer loans with relaxed credit conditions and low down payment requirements.

FHA loans are available to most all borrowers. The FHA loan programs have very few restrictions with the exception of a limit on the maximum loan amount. A borrower does not have to a first time home buyers to obtain an FHA loan. An FHA home loan can be used to purchase a home or refinance a home.

Existing mortgage holders that want to refinance their home loan do not have an FHA loan presently. FHA home loans for refinances can be for rate and term refinances or cash out refinances. FHA loans are available for 1-4 family owner occupied properties.

The underwriting and approval process for FHA home loans is almost identical to the process for conventional mortgage loans. Home loan borrowers will be evaluated on the down payment amount relative to the home value or LTV, the borrower’s credit score and credit history, the borrower’s income and debt ratios and the assets and liabilities of the borrower.

The structure of an FHA loan is also nearly identical to conventional mortgage loans. FHA home loans can be obtained with a fixed mortgage rates or adjustable mortgage rates. The term of the FHA loan can be between 15 years to 30 years in length. The monthly mortgage payment will vary based on current mortgage interest rates when you apply, with each mortgage lender establishing their own mortgage rates.

Additional resources can be found at What is FHA and FHA Mortgage Rates

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