| FHA loans are a great way for first-time property | | | | money to qualify under generous guidelines, and there |
| buyers with a lower down payment fund to buy a | | | | is no maximum on income to qualify. On the con side |
| property. | | | | though, there is a maximum on the loan amount and |
| An FHA mortgage is one that is insured by the Federal | | | | that maximum is not nearly as high as conventional |
| Housing Association, in conjunction with the U.S. | | | | loans. These loans are worth less because they are |
| Department of Housing and Urban Development | | | | geared towards first-time buyers and mortgage |
| (HUD), and is open to all qualified homeowners. The | | | | borrowers who cannot afford high-priced homes and |
| FHA works to encourage the availability of housing for | | | | the higher down payment those houses would require. |
| low- and moderate-income families, but can assist | | | | Qualifying |
| almost any moderate-priced home in the United | | | | There are different sized FHA loans to accommodate |
| States. | | | | all sorts of people and financial situations, but most |
| How Do FHA Mortgages Work? | | | | require a good credit history and sufficient income to |
| FHA mortgages offer lower percentages of securing | | | | qualify. |
| down payments than conventional mortgages, | | | | Previously, the Federal Housing Association used to |
| sometimes as low as 3% down. FHA loans are not | | | | qualify homeowners by a complicated residual income |
| home loans, but insure home loans. The government | | | | method. Now, for the sake of both the lender and the |
| uses a Mortgage Insurance Premium (MIP) as means | | | | homeowner's understanding and sanity, they use gross |
| of insurance. MIP's are divided into two parts: upfront | | | | qualifying similar to that of conventional mortgages, but |
| and renewal. The upfront MIP is financed into the loan | | | | with higher ratios. There are two ratios the FHA |
| amount, while the renewal premium is escrowed into | | | | primarily uses for these types of loans, (1) 29% of |
| the monthly payment. The MIP of FHA loans are | | | | gross monthly income for housing expense or (2) 41% |
| generally more than those of conventional loans, but | | | | of gross monthly income for housing expense and all |
| the insurance is worth it. | | | | monthly debts with over six months to pay off. |
| An FHA loan acts as a sort of safety net for the | | | | With the technology advances of today, qualifying only |
| homeowner. If you should default on (fail to pay) your | | | | takes a couple of days, whereas it used to take 30 to |
| payments, your lender will be paid from your insurance | | | | 45 days. Also, another important fact to remember is if |
| fund. This loan assures you will never miss a payment | | | | you pay off your FHA loan early, part of the MIP will |
| and cause damage to your credit or the relationship | | | | be refunded to you. The longer you hold onto the loan, |
| with your lender. | | | | the less you will get back. |
| Pros and Cons of FHA mortgage | | | | Final Notes |
| As with almost all mortgages and loans, FHA loans | | | | So if you are considering an FHA loan, talk to your |
| have both good and bad points. On the pro side of | | | | lender and see if it is the right option for you. |
| things, one of these loans allows you to put down less | | | | |