FHA Mortgages
WHAT IS FHA MORTGAGE INSURANCE?
The Federal Housing Administration (FHA) insures
mortgages offered by banks, savings associations, and other
financial institutions. An FHA-insured mortgage is backed
by the full faith and credit of the United States government.
While FHA does not make loans, it benefits the homebuyer
by providing mortgage insurance which encourages financial
institutions to make affordable financing available.
WHAT ARE THE BENEFITS OF AN FHA MORTGAGE?
FHA offers low down payment options, eligibility with less
than perfect credit, a loan at a reasonable cost, and help if
there is ever trouble making the mortgage payment.
Because an FHA mortgage insures the lender against loss,
an FHA mortgage typically has an interest rate that is
competitive with the best in your market and lower than
the rates charged for subprime and other non-prime
mortgages.
FHA not only helps people buy a home, but helps them keep
it as well. In return for protecting lenders against loss, FHA
requires financial institutions to offer assistance to borrowers
experiencing difficulty making mortgage payments.
WHAT ABOUT ELIGIBILITY?
In order to be eligible for an FHA-insured mortgage,
a borrower must:
• Occupy the property as the principal residence;
• Possess a valid Social Security Number;
• Have a two-year employment history;
• School and military service count towards this
two-year requirement.
• Not be delinquent on any Federal debt such as a student
loan or other FHA-insured mortgage; and
• Meet flexible credit requirements.
THERE ARE SEVERAL OTHER FEATURES
WORTH KNOWING ABOUT AN FHAINSURED
MORTGAGE:
• FHA adopted the industry appraisal standards permitting
the use of the Fannie Mae appraisal forms with no additional
specialized documentation, no Valuation Conditions form
or Homebuyer Summary.
• FHA has eliminated unnecessary requirements to make
minor repairs.
• The homebuyer and the seller, individually or jointly, can
pay closing costs as agreed to in the sales contract. FHA no
longer limits what closing costs the homebuyer is permitted
to pay.
• Caps on payment and debt-to-income ratios are more
generous than most standard conforming mortgage products.
The payment-to-income ratio may not exceed 31% and the
debt-to-income ratio may not exceed 43%.
• A minimum credit score is not required. In fact, one may
not be turned down for an FHA mortgage solely for lack of
credit history.
• The buyer’s entire cash investment—as little as three
percent—can be a gift from a family member, employer,
charitable organization or local government entity.
• The seller can contribute up to six percent of the home’s
price toward closing costs through a seller’s concession.
• There are no prepayment penalties on FHA-insured
mortgages.
• U.S. citizenship is not required but, for those who are not
citizens, they must be lawful permanent or non-permanent
resident aliens with a valid Social Security Number.
HOW ELSE CAN FHA ASSIST IN
ACHIEVING HOMEOWNERSHIP?
In addition to its standard Section 203(b) Mortgage Insurance
Program, FHA has a number of other valuable programs
designed to facilitate homeownership.
FHA Adjustable Rate Mortgage (ARM) Products
• FHA offers a standard 1-year adjustable rate mortgage
(ARM) as well as 3, 5, 7, and 10-year ARM options.
• ARM products may be good options for those who plan to
own the home for only a few years, expect an increase in
future earnings, or expect a decrease in interest rates.
FHA’s Limited Repair Program
• FHA’s Section 203(k) Limited Repair Program is an excellent
financing option for you whether buying or selling homes—
especially when repairs are identified during a home inspection
or appraisal—because it gives buyers the ability to make
repairs after closing.
• Buyers can finance up to an additional $35,000 into their
mortgage to pay for minor remodeling such as replacing
flooring, installing new appliances, and painting the interior
and/or exterior of the home.
IN ADDITION TO FHA, THE U.S.
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT (HUD)
OFFERS THESE RESOURCES:
HUD Homes
The Department has single-family homes in hundreds of
communities available for sale to the public. How do you
benefit from purchasing a HUD Home?
• Many HUD homes are available with FHA financing,
making it easier to purchase a home.
• The Department pays the real estate commission, if it is
included in the contract.
• Only a real estate professional licensed by the state and
registered with HUD can sell HUD homes.
