About FHA

About Federal Housing Administration (FHA)

The Federal Housing Administration, generally known as "FHA", has been helping borrowers realize the American dream of affordable homeownership since 1934 and provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals.

Benefits of an FHA Home Loan include:

Lower Down Payments - Only 3.5%
Flexible Credit Qualification Guidelines
Low Fixed and Secure Adjustable Rate Mortgages
Gifts and Down Payment Assistance
No Assets or Reserve Requirements
Previous Bankruptcy & Foreclosure (some restrictions apply)
Allows up to 85% Cash Out on Existing FHA Loans

Down Payment As A Gift

If a borrower does not have 3.5% of his or her own money to put down towards the home purchase, FHA allows that amount to be in the form of a gift to the borrower. However, it must be from an immediate family member, employer or significant other and must be verifiable prior to transferring the monies to the borrower account.

FHA Loan Programs:

FHA is not a lender and does not actually make or guarantee home loans. They only insure loans in which case they currently are offering the following three programs:

30 year fixed
15 year fixed
5 year fixed ARM

How Does an FHA Loan Differ from a Conventional Loan

The Federal Housing Authority (FHA) was created in 1934 to help expand home ownership. Prior to the FHA’s creation, most lenders required at least a 50% down payment and most loans were on a short 3 to 5 year term with the entire balance coming due at the end of the term. This is why, prior to 1934, 6 in 10 American households rented their home. Today, FHA programs are designed to help both first time and experienced home buyers purchase their primary residence with very little money down.

FHA insures home loans and minimizes the risk lenders face when buyers put down less than 20 percent of the purchase price as a down payment.

Conventional loans on the other hand have very strict guidelines including higher credit scores, they require a minimum down payment of 10% and they require higher insurance premiums.

Mortgage Insurance Premiums (MIP)

FHA mortgage insurance, typically referred to as MIP, is the one closing cost that is unique to FHA mortgage loans. Regardless of the amount of down payment, all FHA loans require mortgage insurance.

There are two types of mortgage insurance for FHA insured loans – Up-front Mortgage Insurance Premiums and Monthly Mortgage Insurance Premiums.

Up-front Mortgage Insurance Premium (UFMIP)

When obtaining an FHA purchase loan, the UFMIP is calculated at 1.75% of the base loan amount on all loans, regardless of the down payment amount. This insurance protects the lender against losses in the event that the borrower defaults on the loan and can be included in the new loan amount.

The lender funding the FHA loan collects these fees upfront and forwards the full amount to FHA who insures the loan. Should an existing homeowner sell their property during the first three years, they may be entitled to a refund which would be paid directly from FHA.

Monthly Mortgage Insurance Premium

In addition to the UFMIP, FHA also require a monthly premium.The monthly premium is .55% of the base loan amount and is included in the total monthly mortgage payment to allow payment in the future.

Contingent upon a homeowner making payments for at least 5 years and having a minimum of 78% equity, a homeowner can request the mortgage insurance to be removed. Should you need additional information regarding this procedure, please contact Inman Mortgage directly at 800.814.4656.