FHA Loan

FHA mortgage loans are issued by federally qualified lenders certified by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.

FHA loans are an attractive option, especially for first-time homebuyers:

Q and A 
Q: What is an FHA mortgage?

A: An FHA mortgage is a form of insurance. The FHA does not lend money; private lending organizations, such as mortgage companies, banks, credit unions, or savings and loans, lend money. An FHA-approved mortgage is insured to the lender in case the homebuyer defaults on the loan.

Q: What are the advantages of an FHA mortgage?

A: There are many advantages of an FHA mortgage. Typically, only a 3.5 percent down payment is required to secure an FHA mortgage. Unlike conventional mortgages, the money for down payment does not have to be verified as the buyer's money; it can be a gift to the home purchaser from outside sources. In addition, the credit qualifications for an FHA mortgage are often less stringent than qualifications for conventional mortgages. Bankruptcy or foreclosure does not necessarily disqualify a borrower from approval if the processes have been completed within the required time period.

Q: Are FHA mortgage processes complicated?

A: No more so than conventional mortgage processes. FHA financing procedures have slimmed down in the past 20 years. In some cases, it is easier to qualify for an FHA mortgage than it is for a conventional mortgage.

Q: Who is eligible for an FHA mortgage?

A: Anyone who meets the credit, income, and employment requirements is eligible for an FHA mortgage. U.S. citizenship is not required for an FHA mortgage. The property secured with the mortgage must be the purchaser's primary residence. A social security card is necessary to qualify for an FHA mortgage.

Q: What is mortgage insurance, and how does it apply to FHA mortgages?

A: Mortgage insurance is required to secure an FHA mortgage. Insurance money is collected by the lender (the bank, credit union, or savings and mortgage) and paid to the FHA. If a buyer defaults on the mortgage, the money will be returned to the lender in the form of insurance against the default. 

Q: What are the different types of FHA mortgages?

A: Like conventional mortgages, there are several different types of FHA mortgages. A fixed-rate mortgage secures an interest rate at the time of purchase and remains constant for the life of the mortgage. There is also an adjustable-rate mortgage (ARM). The interest rate on an ARM fluctuates throughout the life of the mortgage, mirroring the current national index.

Q: What are the interest rates on FHA mortgages?

A: FHA mortgage interest rates are on par with the national average for conventional mortgages. FHA mortgage interest rates reflect current market conditions. A buyer may also use points when securing an FHA mortgage. "Points" lower the interest rate, and must be used as a down payment or financed through the mortgage.

Q: What are the expenses of an FHA mortgage?

A: When purchasing a house with an FHA mortgage the buyer is responsible for the following: Down payment (usually no more than 3.5 percent), appraisal fee, escrow, mortgage origination fee, recording fees, credit report charges, title insurance policy fees, MMI impounds, hazard insurance and reserves, MIP (mortgage insurance, which can be financed), and property taxes.

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