The Federal Housing Administration, was established by the U.S. Government in 1934 to improve existing housing standards and conditions for Americans after the Great Depression.  FHA loans are once again becoming increasingly more popular as today’s mortgage industry continues to contract and guidelines for both conventional and subprime lending become more restrictive.

The FHA does not lend money, it insures it.  An FHA-approved mortgage is insured to the lender in case the homebuyer defaults on the loan.  Lenders who wish to offer FHA products must meet several financial requirements and undergo a difficult and lengthy application process to achieve FHA Approval.  Only FHA approved lenders are legally permitted to originate FHA mortgages.  Only specially-trained, FHA-approved underwriters may legally process and underwrite an FHA loan.
  

What are the benefits of an FHA Mortgage?

Imperfect Credit History

If you have less-than-perfect credit, FHA may be the way to go.  FHA guidlines tend to be more leanient than conventional Fannie Mae/Freddie Mac guidelines with regards to past credit history. 

·      FHA loans are not solely credit score driven.

·      Bankruptcy:  You can obtain an FHA loan two (2) years from the discharge date, assuming good credit has been reestablished from the time the bankruptcy was discharged.

·     Foreclosures:  Having reestablished good credit after a foreclosure, you can obtain an FHA loan two (2) years from the final date of foreclosure.

·     Mortgage payment history is important.  Prior late payments will require a letter of explanation but current late payments are unacceptable.  

FHA Purchase/Refinance

FHA mortgages are an attractive option to many first-time homebuyers, as they can finance 96.5 percent of the purchase price with a required downpayment of only 3.5 percent.

FHA also allows homeowners to obtain an FHA refinance.  This makes it possible to lower your interest rate and your monthly payments, despite having blemished credit in the past.  With so many Americans facing interest rate resets on their adjustable-rate mortgages, many are struggling to keep up with increasing mortgage payments. 

Current FHA mortgage holders may be eligible for an FHA Streamline Refinance with or without an appraisal.  

Competitive Rates and Terms

·         Very competitive interest rates.  There is little to no adjustment to the interest rate for an FHA loan.  The rates vary within .125 percent of a conventional loan.

·         FHA offers both Fixed Rate mortgages for 10, 15, 20 or 30 year terms and Adjustable-Rate mortgages as well.

·         Mortgage Insurance Premium (MIP) is funded into the loan.  A premium of 1.5 percent of the loan amount is added to the loan balance instead of being paid out-of-pocket.  A small portion of the mortgage insurance premium is added to the monthly payment but is much less than Private Mortgage Insurance (PMI) premiums.

·         Allowable debt ratios are higher than the limits imposed for conventional loans.

·         FHA home repair demands are much more reasonable than they were in the past.

·         Increased loan limits with the passing of the FHA Modernization Act of 2007.  This means more homeowners with larger loans will now be eligible for an FHA mortgage.   

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