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What is a FHA Loan

FHA LOAN

Created under the U.S. Housing Act of 1934, the Federal Housing Administration (FHA) is charged with promoting homeownership and has helped tens of millions of Americans reach that goal with an FHA loan. An

FHA loan was created to insure mortgages made to lower and moderate income borrowers as well as those made to first-time homebuyers for the purchase of an owner occupied primary residence. FHA is part of the U.S. Department of Housing and Urban Development (HUD) and is overseen by HUD’s secretary.

An FHA loan is insured by the Federal Housing Administration. FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

FHA loan programs are particularly beneficial to those buyers with less available cash. The interest rate on an FHA loan is very competitive with

Conventional loans, while down payment requirements lower and qualifying guidelines are more flexible.

Benefits of an FHA Loan

include:

Only a 3.5 percent down payment is required
Closing costs can be financed or paid by seller
More flexible underwriting criteria than conventional loans
FHA limits the amount lenders can charge for some closing costs
Loans are assumable to qualified buyers
Allow non-occupant co-borrowers to help qualify
Down payment and closing costs can be 100% gift funds

Limits

Each year HUD determines the maximum loan amounts for an FHA loan. Not only are these limits set by State, but they are also implemented by County. They are reset annually based on the areas median affordable sales prices. To find the FHA Loan Limit in your County, use the FHA Loan Community Lookup Guide.

FHA Mortgage Insurance (MIP)

FHA loan MIPs are paid through a combination of an upfront fee that can be financed into the FHA loan and monthly installments built into the mortgage payment.

FHA Condominiums

FHA also insures loans meant specifically for the purchase of condominium units. An

is available for condominium projects that have at least four units and include detached, semi-detached, row houses, walk-up, and elevator equipped “high-rise” structures. HUD has a list of approved condos that qualify for an FHA loan. To find FHA approved condominiums, use the FHA Condo Lookup Tool.