FHA

What Are FHA Mortgage Loans?

First of all, FHA stands for the Federal Housing Administration. One would naturally think that FHA mortgage loans are loans made by the FHA to borrowers who want to buy a home. However, this is not the case. The actual mortgage loans are provided by regular banks and lenders (FHA approved, of course). What the FHA does is to insure the loans to these lenders. In other words, if the borrower does not pay back the loan, the lender can then turn to the FHA for assistance in recouping its money. By the FHA guaranteeing these loans, the risk to lenders is reduced and borrowing power is increased for the successful applicant.

How To Obtain FHA Mortgage Loans

In order to qualify for FHA financing, certain requirements have to be met. The potential borrower will need to have a good credit record. A credit score below 580 will make it necessary for the applicant to make at least a 10 percent down payment, otherwise, the necessary down payment might be as low as 3.5 percent. Mortgage insurance is required with an FHA mortgage loan as protection for the lenders if the mortgage is defaulted. Depending on the type of housing and the state and county where the home is located, the FHA loan limits will vary somewhat, so the borrower will need to check on these limits for his or her area. An applicant for an FHA mortgage loan will also need to be able to pay for having the property appraised and for obtaining his or her credit report.

Benefits Of An FHA Mortgage

The primary benefit of this type of loan is the low FHA mortgage rates. Families with low or middle incomes can usually afford to buy a more expensive home than they could with a more standard loan. In some cases, down payments can be as low as 3.5 percent. Help with financing closing costs and mortgage insurance is also available through the FHA. Additionally, lenders with the FHA are not permitted to charge borrowers more than 1 percent for origination fees. Still another benefit is that FHA mortgages will not assess penalties if the borrower pays off the loan ahead of schedule.

FHA Refinancing

It is also possible to obtain refinancing through the FHA if an applicant is using his or her home as a primary residence. Homeowners have several options available to them through FHA refinancing. They can use the Cash Out refinancing method which lets them refinance their current mortgage by taking out another one for a larger amount than what they owe currently. Another option for FHA refinancing lets the borrower lower their interest rate on their current loan. It is called the FHA streamline refinancing method and is dubbed such because the process is quick, cuts down on paperwork, and sometimes can even be done without a property appraisal. This can save both lender and borrower precious time and money.