What is an FHA Home Loan?

An FHA home loan is a mortgage loan fully insured through the Federal Housing Administration (FHA) and issued by FHA-approved lenders, such as a mortgage company, bank, savings and loan association, etc. An FHA loan has several key advantages over a traditional loan:

house for sale
Photo by Jamoker via Flickr
  • Lower down payment. Your down payment can be as low as 3.5% of the purchase price. Moreover, money received as gift qualifies toward down payment (traditionally, mortgage companies do not include this amount in your assets). This makes home ownership more obtainable for the first-time homebuyer.
  • Lower interest rate. An FHA loan can have a lower interest rate, which significantly reduce your monthly payment for the life of the mortgage.
  • Lower closing costs. An FHA-approved lender usually offers lower closing costs than a conventional mortgage company.
  • Easier to qualify. Currently there are tougher credit guidelines in place for most mortgage companies. However, loans through the FHA program are more easily approved for those with less than perfect credit because the federal government insures the loans.
  • Lower chance of foreclosure. In case of financial difficulties, the FHA is more willing to work with the borrower and provides programs to help avoid foreclosure.

FHA loan is not a new concept. The Federal Housing Administration has been insuring mortgages since 1934. Therefore, an FHA loan is a very good option if you qualify: click here to see if you are eligible for an FHA loan (free via LendingTree.com). Another site to check is the FHA Mortgage Center, where you can apply for an FHA loan or just learn more about your FHA options.

About the Author

By , on Aug 7, 2008
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo have enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Mortgage Rates and Calculator

Purchase RatesRefinancing Rates
mortgage calculator Mortgage Calculator with Amortization

Leave Your Comment (6 Comments)

  1. Pinyo says:

    @Ryan – Thank you for the update.

    @Big Wizz — Thank you for the additional information. Excellent point about PMI.

    @Ben — Definitely ask your broker about it. It never hurts to explore all of your options. As far as LendingClub, I have used their other products before, so I think this calculator works just as well.

  2. Ben says:

    Nice overview. I am obsessed with these sorts of things now and am glad to read this. I have heard rumors that some FHA loans are dependent on a debt to income ratio but recently learned that the details are little different. I am meeting with my broker on Wednesday and will ask about it then as well. How accurate you think that LendingTree calc is? See ya around!

  3. Good point by Big Whiz. I’ve never taken out a FHA loan, but I’ve heard that they can take longer to process. If your in a hurry to close that could be a constraint.

    However, my opinion is now is a great time to buy investment properties. Regardless of what type of loan you choose, you should be on the lookout for some low hanging fruit.

    I recommend reading my recent ezinearicles.com artticle entitled “Fixer Upper Investing for the Small Investor” at the link below.
    http://ezinearticles.com/?Fixe.....id=1376812

  4. Nick says:

    Yes, the new housing bill changes the down payment to 3.5%. First time home buyers can also take advantage of a $7,500 interest-free loan from the IRS in the form of a tax credit (which must then be paid back over the next 15 years or when the property is sold).

    But FHA loans are a good opportunity for new buyers and ones who may not qualify for a traditional mortgage loan. In October, some foreclosure victims will also be able to tap the FHA for funds to pay off their defaulted mortgage.

  5. Big Wizz says:

    One MAJOR point that was not listed. If you don’t put at least 20% down, you will obviously have PMI. However, FHA also charges a mortgage insurance premium, up front, which is 1.5% of the total value of the house. So, let’s say you’re buying a $200,000 house. You’ve just added another $3,000 to your loan.

    Also, you can *never* remove escrows from your bank with a FHA loan. I like to manage my own escrows (homeowners ins. & property taxes), but with an FHA they don’t give you that option, ever. Even when you get more than 20% equity, you still cannot remove escrows.

  6. Ryan says:

    I believe that the new housing bill changes the down payment amount to 3.5%.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.