FHA Mortgage

An FHA mortgage is granted through HUD or the Department of Housing and Urban Development program, offering home buyers a federally insured loan. FHA mortgages are insurance programs on loans made by qualifying lenders to people purchasing or refinancing their home. This insurance program can help low and moderate income families become homeowners by lowering some of the costs associated with purchasing a house. FHA mortgages encourage lenders to make loans available to people that otherwise would not be able to afford the down payment or closing costs that traditional loans require. "Through wisdom is an house builded; and by understanding it is established" (Proverbs 24:3).

One of the unique factors of the FHA mortgage insurance program is the ability to receive a loan with only 3% of the purchase price down as an alternative to the traditional 20% down. This enables an entirely different income level of citizens to realize their dreams of home ownership. The FHA mortgage insurance program has stiff requirements on the loan. They have their own home inspectors review the potential home and utilize high inspection standards. If the home does not meet these high standards then the loan will not be granted until the appropriate repairs have been made. This filters out the "bad" homes so that in case of default, HUD can resell the home without a great loss.

It is extremely important to note that FHA mortgages are not loans. The insurance is a guarantee by the government that if an individual defaults on a loan, then the FHA will pay the balance. Lenders are usually excited to offer this insurance program to their borrowers. Typically an interest rate will be lower than traditional mortgages, unless the borrower has exceptional credit and is offered an equally exceptional rate. The program can be used to purchase a home or building up to four units.

FHA mortgages may also be used to refinance a home. Another benefit is to include the closing costs in a mortgage, instead of paying for them out of pocket. The closing costs are usually the responsibility of the buyer, and having them wrapped into a mortgage can really help someone purchase a home with little money down. HUD sets limits, however, on how much can be borrowed. Each state and area has its own limitation based on the housing market. For example; housing in California has a higher limitation than housing in Nebraska. It is advised that anyone interested in purchasing a home using the FHA mortgage insurance program contact their financial institution for a more thorough description.

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