Why Get
FHA
Mortgages
The Federal Housing
Administration (FHA) insures
mortgages to allow low to moderate income
families to
purchase their own home. With government backing, families can buy a home at a
lower initial cost. However, there are limitations with this program.
Mortgage Insurance –
Section 203(b)
The FHA provides
mortgage insurance, not
mortgage loans to families. However, this program can
reduce the cost of a home loan by thousands of dollars. The program also
encourages lenders to finance mortgages for people who might just miss the
underwriting requirements. For example, FHA loans require a smaller down
payment.
With FHA's Section 203(b) program, a homebuyer can purchase a new or used one to
four family home. However, the buyer has to live in the home.
FHA Benefits
A FHA
mortgage
allows some borrowers to qualify for the lower interest rates of a conventional
loan, rather than using a higher rate sub-prime mortgage. This can save
thousands in interest charges.
Required down payments are also smaller. Instead of the typical 10% down, a
buyer can put down as little as 3%. The closing costs can also be financed with
the mortgage, lowering the initial costs of purchasing a home.
The FHA also limits fees that can be charged to the borrower. For example,
the loan origination fee cannot surpass 1% of the
mortgage amount.
FHA Drawbacks
FHA loans do have
their drawbacks and are not for everyone. For instance, the FHA sets loan limits
to ensure the program serves low to moderate income families. You may find with
these loan caps that you will need to apply for a conventional or jumbo loan to
purchase your home.
You also have to use the house as your primary residence. If you are looking to
invest in property or buy a vacation home, then you will need to look at other
financing sources.
Applying For
FHA
Mortgage
FHA insured
mortgages are provided through approved financial institution. Fortunately, many
of today's lenders are approved. Just like with any type of loan, you should
compare rates of different lending companies. An FHA approved institution
doesn't necessarily mean they offer the lowest rates.
You can easily find rates and terms online by searching individual sites or
using a mortgage broker site. By collecting quotes, you can research rates
without hurting your credit score.
Mortgage Glossary9
