An FHA mortgage insurance program can help low- and moderate-income families become homeowners by lowering some of the costs of your mortgage loan.
An FHA mortgage insurance program can help low- and moderate-income families buy a single family home to live in by lowering some of the costs of the mortgage loan. While U.S. Housing and Urban Development (HUD) does not lend money directly to buyers to purchase a home, Federal Housing Administration (FHA) approved lenders do make loans through FHA-insurance programs. Home buyers or current homeowners who intend to live in the home and are able to meet the cash investment, the mortgage payments, and credit requirements, can apply for a home mortgage loan through an FHA-approved lender. These lenders are worth considering if you’re a creditworthy borrower who does not meet conventional underwriting requirements because FHA mortgage insurance encourages lenders to make loans for mortgages to borrowers like you for properties that meet certain minimum requirements--including manufactured homes, single-family and multifamily properties, and some health-related facilities.
These FHA programs insure home purchases or refinancing loans with interest rates that may increase or decrease over time (called Adjustable Rate Mortgages or ARMs). Especially during periods when interest rates are high, an ARM can help you purchase or refinance a home at a lower initial rate, making the purchase more affordable. This interest rate is adjusted annually, based on market indices approved by FHA, and thus may increase or decrease over the term of the loan. The maximum amount the interest rate may increase or decrease in any one year is 1 percentage point. Over the life of the loan, the maximum interest rate change is 5 percentage points from the initial rate. Lenders must disclose to the borrower the terms of the ARM at the time of loan application. In addition, borrowers must be informed at least 25 days in advance of any adjustment to the monthly payment.
Low downpayment requirements, sometimes you can put down as little as 3.5 percent. FHA insurance allows borrowers to finance approximately 96.5 percent of the value of their home purchase through their mortgage.
Financed closing costs, reduces the up-front cost of buying a home. However, not all of these up-front expenses can be folded into the mortgage. In addition to the downpayment, the purchaser must pay for items such as the appraisal and the title search.
Easier to qualify, because lenders are protected from potential borrower default.
FHA mortgage insurance is not free. The mortgage insurance premiums become part of your cost of the mortgage. This doesn’t make it a bad option, but it is a factor to consider when you’re weighing all of your options.
Up-front insurance premium. Borrowers pay an up-front insurance premium (which may be financed) at the time of purchase.
Monthly premiums. These insurance premiums are not financed, but instead are added to the regular mortgage payment.
Ready to contact a lender?
For loan term information and to apply, contact an FHA-approved lender: HUD Lender List.