What is a FHA Loan?

Sep 20, 2013 by

What is a FHA Loan?

What is a FHA loan?

A FHA loan is a loan that is insured by the US Federal Housing Administration (FHA). This loan is not provided by the FHA but is insured by the FHA and issued by an approved lender. FHA “insured” loans are a type of loan that is considered federal assistance”. These loans are generally targeted at people who normally could not afford homes. The word MIP gets thrown around alot when it comes to an FHA Loan (also UFMIP). The reason is that on a FHA Insured loan you will need to pay and up front mortgage insurance premium (UFMIP) that is 1.75% of the loan amount at closing. This is generally financed into the loan amount so the borrower does not need to pay this out of pocket. Now on top up the up front insurance the borrower will also have to pay mortgage insurance premium (MIP).


Obtaining an FHA Loan.

Like stated above the FHA does not issue loans, but rather will insure the lender issuing the loan. Now when it comes to getting an FHA loan you will want to shop around and find the best priced lender who is a FHA approved institution. Remember when shopping the lender not the FHA are setting rates and terms, so be through when finding the right lender. The lender will look at your credit and your debt to income ratio, by doing this the lender will see how much of a risk you are for them. (risk of not paying and defaulting). FHA loan borrowers with a FICO score that is below 640 will be at risk for not qualifying or being hit with higher lending rates.


Some Benefits of a FHA Loan.

FHA is targeted at people with a lower income or even middle class income, meaning FHA loans allow things such as lowering that cost of mortgage loans (rates, closing costs etc) to make the owning home and obtaining a loan to purchase the home. One of the great things is that a FHA borrower can put down as little as 3.5% down to receive a loan ( Don’t put that little down if you can afford more the annual MIP could make this an unwise choice). Also FHA loans have a clause that will allow a qualified non-occupant co-borrower to be a co-signer on the loan without actually having to live in the home (FHA loan requires the borrower to dwell in the house, as do a lot of loans.)



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