| FHA has become a popular choice of many first time | | | | unlike FHA loans. In fact FHA loans can be easily |
| home buyers. FHA stands for Federal Housing | | | | refinanced under the Streamline program. Another |
| Administration. It insures loans, made by approved FHA | | | | benefit of FHA loan is that, it is one of the few home |
| lenders, they do not lend directly to borrowers. FHA | | | | mortgage programs allowing a borrower to have his |
| provides lenders with insurance, in case a borrower | | | | down payment gifted from a family member, a |
| defaults on his loan. But before purchasing your dream | | | | governmental agency, or non-profit organization. This |
| house in America, you need to do a thorough research | | | | allows home buyers without the necessary money to |
| regarding US home mortgages . This will acquaint you | | | | buy a home today. |
| with the terms and policies of FHA loans and the | | | | However, FHA charges an annual renewal mortgage |
| conventional loans. People often associate FHA loans | | | | insurance premium of 0.5% to 0.55% of the loan |
| with purchase money transactions. While purchases | | | | amount. But this fee is generally half, charged by low |
| are the most common use, FHA loans are also | | | | down payment Conforming A Paper conventional |
| available for rate and term refinance loans, as well as | | | | mortgages, Sub prime, Alt A and A minus. For |
| Cash Out refinances. On the other hand, the term | | | | $100,000 mortgage, FHA would charge approximately |
| Conventional Loan includes all loans under the current | | | | $41.67 per month. A typical low down (3%) |
| Fannie Mae and Freddie Mac lending limits. Some of | | | | conventional mortgage with a renewal premium of |
| these may be called Conforming, A paper, sub prime, | | | | 0.78% would charge $65.00 per month. That is $280 |
| Alt A, A Minus, BC (bad credit) and other industry | | | | savings per year. However, conventional financing |
| names. | | | | does not require an upfront mortgage insurance |
| The main advantage of FHA over a conventional loan | | | | premium when a borrower closes on the loan. With |
| is that, the credit qualifying criteria for a borrower are | | | | FHA financing, that fee for a 30 year loan is 1.75% of |
| not as rigid as conventional loan financing and the | | | | the loan amount that the borrower can wrap into the |
| down payment. Equity requirements are less. The FHA | | | | mortgage. On a $100,000 for 30 years at 8%, that's an |
| loan will generally have the least amount of money | | | | additional $11.51 that the borrower must pay each |
| required to close and the lower payment. FHA loans | | | | month. That's almost an additional $132, the borrower |
| allow the borrower who has had a few "credit | | | | must pay each year. But the main drawback to FHA |
| problems" or those without a credit history to buy a | | | | loans is that the loan limits set for FHA loans are |
| home. Most notably, condoning the borrowers, | | | | typically less than the loan limits for conventional |
| surrounding a bankruptcy that was discharged 2 years | | | | financing in most parts of the US. |
| ago. They can be approved for maximum financing. | | | | Now any body can buy a home, thanks to FHA loans. |
| Whereas, Conventional A Paper financing would | | | | The mortgage, you get with an FHA loan is insured by |
| require 4 years to have passed to be eligible for | | | | a government agency. Hence, several costs |
| consideration. It relies heavily upon credit scoring. If your | | | | associated with a home loan, may be lowered or |
| score is below the minimum standard, you will not | | | | dropped out completely. A new program launched in |
| qualify or you will be placed in a higher rate Sub prime, | | | | 2007, known as FHA-Secure, can also be of |
| Alt A or A minus loan product. If a borrower does | | | | assistance to first time home buyers. Thus we see |
| have past credit issues, an FHA loan may be | | | | that FHA loans have an upper hand over conventional |
| significantly cheaper than an alternative loan such as | | | | loans. That's the reason why FHA loans are in greater |
| sub prime, ALT A, or A minus. These other programs | | | | demand in the US. Even if you think you haven't saved |
| generally have higher interest rate, and require larger | | | | enough to be granted a home mortgage loan, still you |
| down payment or Equity position. Many of the | | | | can avail the FHA loan easily. For FHA helps you, |
| alternative loan products have Pre Payment penalties | | | | realize your dreams. So start dreaming! |