FHA - Federal Housing Administration

FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA.

The most popular FHA home loan program nationwide is the 30 year (203b program) FHA home loan that only requires a minimum of 3% from the borrower and permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency. The main advantage to a FHA home loan is that the credit criteria for a borrower are not as strict as FNMA or FHLMC. Someone who may have had a few credit problems should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller must pay for part of the "traditional" closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. 100% of the down payment and closing costs can be gifted.

Down payment requirements: Since this mortgage is insured by HUD, the minimum down payment required is 3% of the sales price. Furthermore, the down payment can be a gift from a family member, the government, or a non-profit agency designed to help first-time and low/moderate income home buyers. No cash reserves are required.

Income and employment:

There are no limitations placed upon income requirements. As for employment, there are no limitations on a specific length of time at a particular job. However, a 2 year history is required; preferably in the same line of work (education can be counted towards this 2 year history if it is for the same profession the borrower is currently in). Please click to see all Income requirements. Click Here

Credit:

HUD requires a borrower to demonstrate a good to excellent repayment history of all debts. This history serves as the most useful guide in determining a borrower's willingness to repay credit obligations and serves as a model in predicting his/her future actions. Please click to see all credit requirements.Click Here

Eligible properties and occupancy requirements:

FHA loans are restricted to 1 to 4 unit single family residences that are new, under construction, or existing (i.e. resale properties), condominiums, town homes, and mobile homes with a permanent foundation, taxed as real property, and built after June 16, 1976.

Closing Costs: HUD has created a list of allowable and non-allowable closing costs that may be charged to the home buyer.

Mortgage Insurance Premium:

The greatest disadvantage of FHA home loans is the upfront mortgage insurance premium (MIP). On a 30 or 15 year FHA home loan that equals to 1.50% of the loan amount in addition to the 0.5% annual renewal premium that a borrower will pay for the life of the loan.

In addition, FHA limits the amount a borrower can borrower. This fee goes towards maintaining the FHA insurance program. This is paid monthly. It is important to note that condominiums are exempt from the upfront mortgage insurance premium, but a borrower would still be required to pay the monthly renewal premium.