FHA loans are mortgages that are insured by the Federal Housing Administration (FHA). FHA began offering loans in 1934 and was created by Congress as part of the National Housing Act, which was signed into law by President Franklin Delano Roosevelt.
They are intended to help low- to moderate-income families become homeowners. Here are important details about FHA loans:
• FHA loans offer debt to income ratios that are significantly higher than conventional loans. The max debt to income is 56.9%.
• FHA is not a mortgage lender, it is a mortgage insurer.
• FHA offers a low down-payment option of 3.5%.
• The down-payment can be provided as gift money.
• FHA loans are assumable. An assumable mortgage involves one borrower taking over, or assuming, another borrower's existing home loan.
• FHA is not just for first-time homebuyers.
• Usually lower interest rates than conventional financing.
• Sellers may contribute up to 6% toward a buyer’s closing costs.
• FHA loans have two mortgage insurance premiums—an upfront MIP of 1.75% and an annual MIP calculated at .55% and paid monthly.
• FHA offers renovation loans called 203K loans.
• The US Department of Housing and Urban Development (HUD) offers a Good Neighbor Next Door program through FHA loans: Law enforcement officers, teachers (pre-Kindergarten through 12th grade) firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD's Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return, an eligible buyer must commit to live in the property for 36 months as his/her principal residence.
• FHA offers reverse mortgage options for 62 and older.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
