FHA loans

About Federal Housing Administration ( FHA ) Loans

Definition
FHA insures mortgages on single family, multifamily and manufactured .The down payment can be as low as 2%. However you will pay mortgage insurance premiums. Mortgage insurance is funded into the loan: a premium of 1.5% is added to the loan balance instead of being paid out-of-pocket. In addition, a small portion for the mortgage insurance premium, which is a way far less than private mortgage insurance premiums, is added to the monthly payment.

First time home buyers
FHA loans are government-insures loans. The insurance removes or minimizes the default risk lenders face when buyers put down less than 20 percent. Lenders bear less risk because FHA will pay the lender if a homeowner defaults on their loan. The proceeds from the mortgage insurance paid by homeowners are captured in an account that is used to operate the program entirely.

Another advantage is that most of your closing costs and fees can be included in the loan.

Refinancing
If you have an adjustable rate mortgage coming due or your interest rate is already too high, so long as you are current on your mortgage and have sufficient income to make the mortgage payment, you are eligible for refinancing into a FHA loan. By refinancing into a FHA-insured mortgage, you pay lower monthly mortgage payments.

Imperfect Credit History
You may qualify for an FHA loan even though you have less than perfect credit history.

FICO scores do not apply.
Bankruptcy: You can obtain an FHA loan two years from the date of your bankruptcy discharge, as long as you've maintained good credit since your debts were discharged.
Foreclosure. If you keep an excellent credit since a foreclosure, an FHA loan will be available to you two years from the final date of your foreclosure.

Loan amounts
Loan amounts are determined by the median prices of different regions. There can be a large difference between loan amounts in a densely populated area and a rural area. As of July, 2006, mortgage limits were as follows:

$362,790 for high-cost areas
$200,160 for low-cost areas
$544,185 in Alaska, Guam, Hawaii and the Virgin Islands

By March of 2008, that limit was increased to a minimum of $417,000 or 125% of median sales price, whichever is greater, with a top end of $729,750

Rates & Terms are competitive

There is little or no adjustment to the interest rate for an FHA loan, as the rates vary within .125 percent of a conventional loan.
Borrowers can finance 97% of the purchase price and put down 3 percent. In some instances, when combined with other types of loans, the down payment can be zero.
Allowable debt ratios are higher than the debt-ratio limits imposed for conventional loans.

Approved lenders
Without further approval from FHA, its approved lenders are authorized to:

Take loan applications
Process loan applications
Underwrite and close the loan

If you need help about an FHA loan, contact:

U.S. Department of Housing and Urban Development
451 7th Street S.W., Washington, DC 20410
Telephone: (202) 708-1112
TTY: (202) 708-1455
Website: Federal Housing Administration

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