What is an FHA Loan?
An FHA loan has the characteristics of a traditional mortgage loan except for the fact that it is insured by the Federal Housing Authority (under authority of the Department of Housing and Urban Development - HUD). The Federal Housing Authority (FHA) was created by the National Housing Act of 1934 to help revive and stabilize a housing market devastated by the Great Depression and the breakdown of the banking system. It did so by providing federally backed mortgage insurance, first for construction loans and then for long term mortgages. Now, FHA mortgage loans help millions of people by their first homes. Though borrowers must fully document their income, credit, and asset information, FHA loans have more relaxed credit history and down payment criteria than traditional conforming loans, and can be a great financing solution for many potential homebuyers.
Eligibility
FHA financing is available to any qualified individual with a social security number. FHA loans do not have a minimum credit score requirement, but past credit history is certainly considered. The property must be the borrower's primary residence, and all borrowers on the mortgage note must live in the home.
Advantages of a FHA Loan
-
Low down payment (up to 3% down)
-
Ability to finance closing costs
-
Seller's concessions of up to 6%
-
1-4 unit dwellings eligible
An FHA loan is an assumable mortgage subject to approval of assumer's credit
You can repay an FHA loan without penalty
FHA Programs and Loan Amounts
Maximum FHA loan amounts vary by state and county
Available programs are a 30 Year Fixed, a 15 year Fixed, and a One Year ARM with a 1% annual cap and a 5% lifetime cap.
-
On a 30 year fixed/level payment, the monthly principal and interest payment remains the same for the life of the loan.
-
The monthly principal and interest payment on a One year ARM (adjustable rate mortgage) can fluctuate based on the index (1 year Treasury Bill), and it has a 1% annual cap and a 5% lifetime cap.
-
A GPM (graduated payment mortgage) allows the borrower to qualify at a lower interest rate but requires a larger down-payment and has negative amortization
