FHA Loans

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA) and falls under the jurisdiction of Ginnie Mae or GNMA.  The FHA program was created in response to the rash of foreclosures and defaults that occurred in 1930s; to provide mortgage lenders with sufficient insurance; and to help stimulate the housing market by making loans accessible and affordable for people with less than perfect credit or a low down payment.  Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.

Today, FHA loans are very popular, especially with first-time home buyers, since the qualifying requirements are more relaxed than Conventional loans.  Borrowers can qualify for an FHA loan with as little as 3.5% in down payment.  FHA also accepts a middle credit score as low as 550 (scores between 550 and 579 require 10% in down payment).  As with any type of mortgage, it is important to remember that the lower the credit score, the higher the interest/fees charged.  FHA loans typically include both monthly and upfront mortgage insurance charges. The upfront mortgage insurance or UFMIP is a percentage that is either financed on top of the base 96.5% loan or it can be paid in cash at closing.  In most cases, the monthly mortgage insurance or MIP will last the life of the loan.  FHA does allow sellers to pay a substantial portion, if not all of the buyer’s closing costs, which is currently up to 6% of the home purchase price.