The FHA home loan is a mortgage that is insured by the Federal Housing Administration. The FHA does not provide money directly to borrowers; rather they insure the mortgage against a default. This makes Federal Housing Administration borrowers particularly attractive to lenders. The lenders know that if the borrower fails to pay, they can come after the FHA for a portion of their money.
Borrowers who pay a down payment of less than 20% of the principal of their home are expected to buy private mortgage insurance (PMI). FHA home loans also require a 1% funding fee that is included in the borrower new loan.
A little FHA History:
The Federal Housing Administration was conceived in 1934. In 1965, it joined with the Department of Housing and Urban Development (HUD). During its lifetime, the Federal Housing Administration has insured more than 30 million mortgages. About 800,000 people who currently hold mortgages have a loan through the Federal Housing Administration. The Federal Housing Administration operates from the proceeds of PMI purchased by home buyers whose down payment was less than 20% of the principal of the home.
Who Qualifies for the FHA Home Loan?
When most people think of a Federal Housing Administration loan, they think of the first time home buyer. Certainly the FHA enables first time home owners in Florida to purchase their home with little money down, but an FHA loan may be an option for you even if you have bought a home before. Many “move up” buyers find the FHA to be an attractive loan option.
Requirements for qualifying for a Federal Housing Administration Loan:
1. Decent credit record – generally at least a 640 credit score is required.
2. Down payment – as little as 3.5% down.
3. Job History – generally 2 year min.
3. Housing costs that equal no more than 29% of your gross annual income (if you are a first time home buyer, this rule ensures that you do not purchase too much house and get into trouble with debt)
Types of Federal Housing Loans:
By far, the most popular type of loan is the fixed rate loan (203B). This loan allows for a low down payment (3.5%), and also allows moneys used for closing to come from gifts.
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FHA Home Loan Details – updated 2015