What are the benefits of an FHA mortgage?

FHA offers low down payment options, eligibility with less than perfect credit, a loan at a reasonable cost, and help if there is ever trouble making the mortgage payment. Because an FHA mortgage insures the lender against loss, an FHA mortgage typically has an interest rate that is competitive with the best in your market and lower than the rates charged for sub-prime and other non-prime mortgages. FHA not only helps people buy a home, but helps them keep it as well. In return for protecting lenders against loss, FHA requires financial institutions to offer assistance to borrowers experiencing difficulty making mortgage payments.

An FHA loan is also assumable by the buyer from the seller. Individuals may assume mortgages originated prior to December 1, 1986, by utilizing the "Simple Assumption" process. For those mortgages originated on December 1, 1986 and thereafter, HUD placed certain restrictions on the assumption of those FHA-insured mortgages and those mortgages have to go through the Creditworthiness Assumption process. Click here to view the Assumption Chart with all the details.

What is FHA mortgage insurance?

The Federal Housing Administration (FHA) insures mortgages offered by banks, savings associations, and other financial institutions. An FHA-insured mortgage is backed by the full faith and credit of the United States government. While FHA does not make loans, it benefits the homebuyer by providing mortgage insurance which encourages financial institutions to make affordable financing available.

What are eligibility requirements?

In order to be eligible for an FHA-insured mortgage, a borrower must:

• Occupy the property as the principal residence.

• Possess a valid Social Security Number. U.S. citizenship is not required but, for those who are not citizens, they must be lawful permanent or non-permanent resident aliens with a valid Social Security Number.

• Not be delinquent on any Federal debt such as a student loan or other FHA-insured mortgage.

• Meet flexible credit requirements. A minimum credit score is not required. In fact, one may not be turned down for an FHA mortgage solely for lack of credit history.

• Caps on payment and debt-to-income ratios are more generous than most standard conforming mortgage products. The payment-to-income ratio may not exceed 31% and the debt-to-income ratio may not exceed 43%.

• The buyer’s entire cash investment can be a gift from a family member, employer, charitable organization or local government entity.

• There are no prepayment penalties on FHA-insured mortgages.

•The home buyer and the seller, individually or jointly, can pay closing costs as agreed to in the sales contract. FHA no longer limits what closing costs the home buyer is permitted to pay. The seller can contribute up to six percent of the home’s price toward closing costs through a seller’s concession.

What if the home needs repairs?

FHA’s Section 203(k) Limited Repair Program is an excellent financing option for you whether buying or selling homes, especially when repairs are identified during a home inspection or appraisal. This is because it gives buyers the ability to make repairs after closing. Buyers can finance up to an additional $35,000 into their mortgage to pay for minor remodeling such as replacing flooring, installing new appliances, and painting the interior
and/or exterior of the home.