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Let’s start with “What is FHA?”
FHA is the Federal Housing Administration, which is a part of Department of Housing and Urban Development (HUD). FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgage loans on single family and multifamily homes–up to four units–including manufactured homes and hospitals.
What does that mean to you, the consumer? In layman’s terms, the government is telling the lender to loosen up a little on the underwriting of their loans and that they are covered for the first 20% of the loan amount in case you default on your mortgage loan payments. The government does charge the consumer a mortgage insurance premium for protecting the lender. This insurance premium is paid in two parts. A lump sum upfront is charged and added on top of the loan amount along with a monthly premium. This monthly premium amount is for the life of the loan unless you put down more than 10% of the sales price or appraised value, whichever is the lesser. Then this monthly premium is payable for 11 years.
FHA mortgage loans are considered a first-time home buyer loan program but is not really limited to first time homebuyers but rather for those who are looking to purchase a home for their primary residence.
FHA Mortgage Highlights
— Low Down-payments as little as 3.5%
— Liberal with credit history. Credit scores as low as 580 and in some special cases down to 500
— Better interest rates depending on credit scores
— Higher debt ratios depending on credit scores and other factors
— FHA mortgage loan limits have been changed in 2019 and vary from county to county