What is a Federal Housing Authority Loan?

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 long term mortgages. By meeting credit history and down payment criteria established by FHA, a borrower can obtain a 20 year fully amortizing mortgage loan.

The Department of Housing and Urban Development (HUD) authorizes the Federal Housing Authority (FHA) to insure lenders against foreclosure loss for any residential mortgage that does not exceed Congressionally set loan amounts.

Eligibility

FHA financing may be used by any qualified person, whether or not a US citizen. However, the property must be the borrower's principle residence; the borrower must live in the home. The borrower must also have a social security number.

Advantages of a FHA Loan

• Low down payment

• An assumable mortgage subject to approval of assumer's credit

• Right to prepay loan without penalty

• Ability to finance closing costs

FHA Programs and Loan Amounts

• FHA maximum loan amounts vary by state and county.

• Programs available 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.

• GPM (graduated payment mortgage) allows the borrower to qualify at a lower interest rate but requires a larger down-payment and has negative amortization.

VA Mortgage Loans: A GOOD DEAL FOR VETERANS  

More than 29 million veterans and service personnel are eligible for VA financing. Even though many veterans have already used their loan benefits, it may be possible for them to buy homes again with VA financing using remaining or restored loan entitlement.

Before arranging for a new mortgage to finance a home purchase, veterans should consider some of the advantages of VA Home Loans:

• The most important consideration, no down payment is required in most cases.

• Loan maximum up to 100 percent of the VA-established reasonable value of the property. Due to secondary market requirements, however, loans generally may not exceed $203,000.

• Flexibility of negotiating interest rates with the lender.

• No monthly mortgage insurance premium to pay.

• Limitation on buyer's closing costs.

• An appraisal which informs the buyer of property value

• Thirty year loans with a choice of repayment plans:

  • Traditional Fixed Payment-- constant principal and interest; increases or decreases may be expected in property taxes and homeowner's insurance coverage

  • Graduated Payment Mortgage (GPM)-- low initial payments which gradually rise to a level payment starting in the sixth year and

  • In some areas, Growing Equity Mortgages (GEMs)-- gradually increasing payments with all of the increase applied to principal, resulting in an early payoff of the loan.

• For most loans for new houses, construction inspected at appropriate stages to ensure compliance with the approved plans, and a 1-year warranty is required from the builder that the house is built in conformity with the approved plans and specifications. In those cases where the builder provides an acceptable 10-year warranty plan, only a final inspection may be required.

• An assumable mortgage, subject to VA approval of the assumer's credit.

• Right to prepay loan without penalty.

• VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.

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NEED MORE INFORMATION?  

Veterans seeking more detailed information concerning the VA home loan program may request VA Pamphlet 26-4 "VA-Guaranteed Home Loans for Veterans", or VA Pamphlet 26-6 "To the Home-Buying Veteran" from the nearest VA office. Loan Guaranty personnel at that office will also be pleased to answer specific questions and provide any other assistance they can.

Remember, VA-guaranteed financing is a benefit which Congress intended eligible veterans should have. If you are a veteran homebuyer or know of one, it makes sense to look into the VA loan program as a good way to finance a home purchase.

A list of VA offices may be found in Help & Information option. Your local VA regional office may be reached by dialing 1-800-827-1000.

Apply for this loan program.