An article about the basics of a mortgage may seem quite humorous. Nothing about mortgages is basic! However this article will increase your knowledge of mortgages and in particular FHA mortgages.
What is the FHA? – The FHA is the Federal Housing Administration, which is part of the department of Housing and Urban Development (HUD). The FHA provides mortgage insurance on loans provided by FHA approved lending institutions. The growing popularity of FHA backed loans has emerged from tightened lending requirements by many institutions in recent years. This has made the FHA loans a haven for individuals that cannot meet the credit score or down payment requirements of standard lending institutions.
Who should look at FHA loans? – If any of the following statements describe your situation an FHA mortgage or mortgage refinance may be the answer for you:
- Credit score less than 680
- Down Payment less than 10% of purchase price
- First time home buyer
- You are a moderate income buyer with a low down payment
Can FHA loans be used for Mortgage Refinance? – Absolutely!! An FHA backed loan can be a great vehicle to refinance your home to either cash out on some of the equity or to lower your current rate and mortgage payments.
So FHA’s sound great, what’s the down side? – There are a few things that you should understand about FHA loans and the process involved in securing one. The first concern for an FHA loan is the lending limits. FHA loans are limited based on where your purchased property is. While there are some areas that you can receive more than $700,000 in a loan, there are other areas where the top limit is less than $100,000. It is possible that the FHA loans available in your area may not be able to lend you enough. Another concern for an FHA loan is that, due to the fact that a loan has less stringent requirements for down payment or credit score, the mortgage insurance premiums are higher. This means that if you can qualify for a conventional loan it is beneficial to do so as FHA loans generally carry more cost.
In conclusion FHA loans can be an excellent option if the circumstances of the borrower meet certain parameters. However it is important, before pursuing an FHA loan, to do a loan comparisons with a number of lenders, conventional or FHA, to determine which is the best option.