FHA Loans

What is an FHA loan?

A FHA loan is a home mortgage that is gauranteed by the Federal Government. The FHA does not make any loans themselves, nor do they build or plan housing developements. FHA stands for the Federal Housing Administration and is the largest insurer of mortgages in the world. It was founded in 1934 and has since insured over 34 million mortgages.

What is the differance between a Conventional loan and an FHA loan?

A FHA loan typically allows buyers to purchase a home with less down payment than a conventional loan. The current down payment as of January 1, 2009, is 3.5% of the purchase price. FHA loans are not as strict, as far as credit worthiness is concerned. Money for the down payment can be gifted from relatives. Income can also be counted from non-occupying co-borrowers.

What type of homes qualify for a FHA loan?

The FHA will gaurantee mortgages for single family or multifamily homes from 1 to 4 units. This includes condominiums, that must be located in complexes approved by the FHA.

What are the fees associated with a FHA loan?

There is an upront fee of about 1.5% of the loan amount that is charged upfront, that is in addition to the misc fees charged for the loan. This fee goes directly to the FHA and is charged on all FHA loans. A monthly fee of .5% (divided by 12) of the declining loan balance is also charged on a monthly basis.

Pre-payment penalties

There are no pre-payment penalties on FHA loans. That makes buyers free to consider refinacing as interest rates go down.

Gift Funds

Gift funds are allowed to be given to buyers for their entire down payment and closing costs. There is no minimum investment required from the buyers own funds. This makes FHA loans great for parents helping ther family members.

Cash Reserves

Most conventional loans require proof of "reserves". This means that the buyers must show 6 months of the monthly payment (PITI) in their savings account. FHA loans do not require any proof of reserves.

U.S. Citizenship

While there are certain visa requirements, U.S. citizenship is not a requirement to qualify for a FHA loan.