FHA Loans

FHA Loans

An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA) and are a very popular choice among first time home buyers as they allow down payments as low as 3.5% for credit scores of 580+. Despite this, borrowers must pay for mortgage insurance to protect the lender in case they fault.

The borrower’s credit score can even be between 500 – 579 if a 10% down payment is made. It is important to remember that the lower the credit score, the higher the interest borrowers will receive, so this allowance will most certainly result in higher interest rates.

The FHA program was created in response to the rash of defaults and foreclosures that happened in the 1930s. These loans provide mortgage lenders with adequate insurance and help stimulate the housing market by making loans more accessible and affordable for those with less than desirable credit or a small down payment. The federal government insures loans for FHA-approved lenders in order to reduce any risk of loss if a borrower has to default on a mortgage payments.

Loan Type Highlights

Section 203(b)

  • the biggest of the FHA’s single family programs
  • 1-4 unit properties eligible
  • 3.5% down-payment allowed
  • flexible credit requirements
  • down-payment may be a gift from certain sources

Section 234(c)

  • provides mortgage insurance for individual condominium units
  • down-payment, credit, and limits of 203(b) apply
  • as of 2010, condominium complexes must be approved through HRAP/DELRAP in order to be eligible for FHA insurance

Section 203(k)

  • primary program for property rehabilitation
  • encourages revitalization of communities and neighborhoods
  • only one mortgage loan is used for the acquisition as well as the renovation
  • required improvements include cost-effective energy conservation standards and smoke detectors
  • 1-4 unit properties (including condominiums) are eligible
  • consultancy may be required

HECM – Reverse Mortgages

  • the FHA was the first to promote reverse mortgages nationally
  • allows access to equity of property with flexible terms
  • lump sum, LOC, monthly payments, or a combination available
  • limited to homeowners 62 years and older

When it comes to FHA loans, recent legislation has allowed the FHA to offer special programs with incentives to lenders for modifying and refinancing existing mortgages. When you are looking for a loan program to fit your specific needs, take a look at the options made available by the FHA as their programs have become more attractive lenders and borrowers alike. With its desirable loan terms, higher loan limits, longer fixed repayment terms and flexible down payment options, FHA will continue to remain a popular loan option for home owners while providing liquidity and stability to the mortgage market.