FHA Loan

What is an FHA Loan?

An FHA loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Because an FHA Loan is backed by the Federal Government, lenders are willing to provide these loans with lower down payments.

Who Qualifies for an FHA Loan?

To qualify for an FHA loan, you'll need to have reasonable debt to income ratios. In general, you have to be better than 29/41, but some programs allow up to 55%. In addition, you have to have decent credit. You don't need outstanding credit to get an FHA loan; it just needs to be decent.

The Benefits of an FHA Loan

FHA Loans allow home buyers to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment. Additional benefits include:
  • Easier to use gifts for down payment and closing costs
  • No prepayment penalty (a big plus for subprime borrowers)
  • An FHA loan may be assumable
  • Possible leniency during financial hard times
  • Funding for home improvement (through FHA 203k programs)

How do FHA Loans Work?

The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1%. They also pay a modest ongoing fee with each monthly payment.

If a borrower defaults on an FHA loan, the FHA uses collected insurance premiums to pay off the mortgage.

Disadvantages of an FHA Loan?

You may find that FHA loans are not for you. They may not provide enough money if you need a large loan. In addition, the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance.

In some cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). In particular, home buyers with good credit can find competitive offers that beat FHA loans.

As always, you should compare offers for FHA loans against other offers.

Is the FHA Loan Right For You?

Blanket Mortgage can help you best determine if an FHA Loan is right for you. Contact us today!
  • Call us at 305.274.5626 -or-
  • Fill out the contact us form to the right -or-
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We look forward to serving you!
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