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Understanding Mortgages: What are FHA Loans?

(07/19/2012) In the midst of one of the most uncertain real estate markets in history, it’s more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.

For many potential buyers looking to take advantage of a highly affordable housing market, FHA loans offer an important alternative to traditional home loans.

Overall, FHA loans are mortgages obtained with the assistance of the Federal Housing Administration (FHA). The FHA insures these loans against default. Lenders can feel more confident lending to certain people with this insurance - if the borrower cannot pay off the loan, the FHA eats the costs instead of the lender.

Typically, FHA loans can be obtained at lower down payments, meaning those borrowers who can afford a home but don’t have a lot of available cash can still buy. Under FHA loans, borrowers can put down as little as 3.5%. In contrast, typical conventional loans require at least 5%, and sometimes won’t lend for less than 20%.

For the ability to put down a smaller down payment and appear more attractive to lenders, the FHA does charge a fee. Borrowers will pay an upfront mortgage insurance premium of at least 1% of the total home price. An additional fee will be charged with each monthly payment.

FHA loans are often a good choice for first-time homebuyers. But no matter if the buyer is experienced or new, FHA loans are also good for those with less money for down payments and closing costs, have decent credit (a score of at least 580), meet certain debt-to-income ratios, want to keep their monthly payments low, and are looking for a home within the price limits set up by the FHA, which can vary by region.

FHA loans can also be obtained for a variety of properties, including single-family homes, duplexes, triplexes, four-unit residential buildings, condos, and mobile homes.

For Additional Reading:

FHA Loans: Frequently Asked Questions: http://www.fha.com/faq.cfm

 

 

 

 

 

 

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