FHA Loans....How Do They Work?
Recently the most common financing for first time homebuyers is a FHA loan.
With the demand for low down payment mortgages many borrowers are exploring this government resource. FHA loans are not limited to first time homebuyers.
FHA loans were instituted in 1937. Congress developed the Federal Housing Administration to provide homebuyers with a fair opportunity to become homeowners. FHA loans are insured by the Housing and Urban Development commonly referred as HUD. HUD insured loans are available in urban and rural areas for single family homes and for 2 unit, 3 unit, and 4 unit properties.
HUD insures mortgage loans to help people buy or refinance their current home with a low down payment. HUD doesn't give you the loan directly. You must go to a HUD approved lender, who will help you find out if one of HUD's programs is right for you.
What are the benefits of an FHA Mortgage?
*Low down payment, as little as 3%
*Down payment can be a gift from a family member or a grant
*Low interest rates
*Seller can pay up to 6% of the sales price for closing cost
*No cash reserves are required
*Non-occupant co borrowers are allowed
*FHA loans are assumable
FHA offers several programs to choose from and they are not limited to just fixed rate mortgages. FHA loans have less strict underwriting guidelines that allow a borrower who normally would not qualify for a conventional mortgage to receive funding. In addition to a standard 30 year fixed there are also 15 and 20 year fixed mortgages. One of the most overlooked programs is the one year ARM. The benefit of this loan is that it allows greater purchase power and allows your buyer to qualify for a larger loan amount. Also unlike a conforming or non conforming adjustable rate mortgage, if interest rates dramatically increase the maximum your interest rate can go up would only be 1% per year, no matter how high interest rates go.