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FHA Mortgage Loans
 

What is an FHA Loan or FHA Mortgage?

FHA mortgages are federally assisted mortgages that insured by the FHA (Federla Housing Administration). FHA loans allow borrowers who have lower credit scores or very low down payment needs to qualify for a mortgage and purchase a home.

FHA loans are issued by federally qualified and approved lenders who will underwrite the mortgages in a way to make sure that borrowers can find the loan they need while still having the ability to repay the loan. These lenders are protected from foreclosure by a mortgage unsurance premium (MIP) that is paid by the borrowers and is explained below. 


FHA Mortgage Benefits - Why are they awesome?!

  • FHA mortgages allow for low credit scores.
  • FHA mortgages require very low down payments.
  • FHA mortgages never have pre-payment penalties

Other Important Features of FHA Mortgage Loans

  • FHA mortgage loans require both taxes and insurance to be escrowed.
  • They require you to have a mortgage insurance premium (MIP)
  • You must have a sustained history of employment (typically at least two years)

If your down payment is less than 20% of the purchase (or 20% of the value on a refinance), you will be required to have MIP (Mortgage Insurance Premium) which is a percentage of the loan and also can be financed (rolled into the loan) so that you do not have to pay out of pocket.

What is the FHA Mortgage Down Payment Requirement

The minimum down payent requirement for an FHA mortgage in 2018 is 3.5% BUT you must have a minimum of a 580 credit score. This program is available for primary residences that are 104 units.

What is the FHA Credit Score Requirement?

Borrowers who are interested in an FHA mortgage can qualify for a mortgage with a credit score as low as 500. However, any borrower with a credit score that is less than 580 will need to put at least 10% down on their purchase. So, there is a benefit to doing whatever you can to improve your credit score.

What is FHA Mortgage Insurance (MIP)?

The FHA mortgage insurance premiums (MIP) provide lenders with protection against any future losses in the event that a borrower defaults on the loan. The lenders are protected because the FHA will cover the lenders' losses in the event of a homwowner's default. Loans must meet the requirements referenced above (established by the FHA) to qualify for insurance.

How Much Will FHA Insurance Cost?

LTV Greater than 90% - Mortgage Insurance Premiums (MIP) must be paid until the end of the loan term, or 30 years, whichever occurs first.

LTV less than or equal to 90% - Mortage Insurance Premiums (MIP) must be paid for 11 years or the end of the loan term, whichever comes first.

Mortgage Insurance Premium (MIP) Base Rate Calculation

Loans less than or equal to $625,500

  • <= 95% LTV 80 basis points
  • > 95% LTV 85 basis points

Loans greater than $625,500

  • <= 95% LTV 100 basis points
  • > 95% LTV 105 basis points

Mortgage Insurance (MIP) Calculation Example:

  • Purchase Price = $315,000
  • Loan Amount = $300,000
  • Loan to Value Ratio = 95.23%
  • Result of example above = 85 basis points or .0085
  • Mortgage Insurance Premium = ($300,000 X .0085) = $2,550 annual or $212.50 per month

FHA Mortgage Loan Programs for Seniors

If you are a homeowner age 62 or older and have a significant amount of equity in your home, you may qualify for the FHA Home Equity Conversion Mortgage Program (HECM). This is basically the FHA's version of a reverse mortgage program. Click to read more about the HECM Reverse Mortgage Program.

FHA Energy Efficient Mortgages

Yes, there is a way to use your loan to help fund energy efficiency improvements in your home. In 2011, the Federal Housing Administration came out with the FHA PowerSaver Grant. They will pay for up to 1% of the closing costs or loan origination fee if the borrowers spend at least $3,500 on energy efficient improvements in the home.

Want to learn more? Let one of our FHA Lenders walk you through the details of the program and provide an FHA Rate Quote.

FHA Loans for Manufactured Housing and Mobile Homes

The FHA now can finance your monile home and factory built manufactured home. There are mortgage products for people who own mobile homes that will be located in a mobile home park and a mortgage product for people who also own the land that their mobile home is on. Want to learn more? Tak to one of our qualified FHA lenders to discuss your personal scenario and to get an FHA rate quote.

FHA 203k Rehab Loan

The FHA has come out with a great program called the FHA 203k rehab loan which enables buyers to purchase a home AND borrow the funds needed to rehab the home. This program allows you to avoid costly short term construction loans that exist outside of teh FHA 203k rehab mortgage loan program. This is a single, long term loan (either fixed or adjustable) that will cover the cost to purchase the loan as well as the rehabilitation costs.

The History of FHA Loans

Rather than bore you with the history lesson in the beginning, we are giving you the background of how FHA loans originated here. In 1934, the Federal Housing Administration (FHA) was created and its purpose was to implement loan insurance programs, increase the construction of new homes and also to somehow reduce unemployment (most likely by creating construction jobs).

The FHA today does not originate loans or build homes. The loans are made by lending institutins that can help the borrower to obtain a loan that is insured by the FHA. The FHA then inspects the loan and the applicant and if all of the conditions are met, the FHA will approve the loan to be insured as an FHA loan. Back in the day, these loans excluded many minorities.

In 1974, the Housing and Community Development Act was implemented and it added various provisions which limited the power of the banks and credit unions. Then, in 1977 the ceilings for the loan amounts were raised (single family homes). In 1980, negotiated interest rates on various FHA loans were enabled by the Housing and Community Development Act. In August of 2007 the FHA came upw ith a way for subprime loan holders to refinance their expensive loan programs into a new one called FHA Secure. In 2008, the FHA forward was created to raise FHA Loan Limits again. In April of 2012, the FHA required that customers pay off or settle any medical bills prior to gettin an FHA mortgage. However, this rule was eventually cancelled.

Hopefully this provided you with enough information on FHA loans to help you to move forward with an FHA Rate Quote.

 

FHA DOWN PAYMENT information

To see what the FHA mortgage loan limits are in your area, click on the FHA Loan Limit Calculator below.

FHA Loan Limit Calculator

 

Related Links

FHA Reverse Mortgages - HECM

FHA 203k Rehab Loans

The Pros and Cons of Borrowing with an FHA Loan - The Balance

FHA Loans and What You need to know - Nerd Wallet

Things To Know About An FHA Loan - Bankrate

 

 

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