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.

house for sale
Photo by Jamoker via Flickr

An FHA loan has several key advantages over a traditional loan:

Lower down payment. An FHA loan usually requires just a 3% down payment. 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.

Click here to to see if you qualify for a FHA home loan

9 Comments

Ryan
August 7, 2008, 9:19

I believe that the new housing bill changes the down payment amount to 3.5%.
Big Wizz
August 7, 2008, 9:50

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.
Nick
August 8, 2008, 11:15

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.
Fixemup Terry
August 17, 2008, 0:30

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
Ben
August 18, 2008, 10:17

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!
Pinyo
August 18, 2008, 10:45

@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.
yanni raz
September 5, 2008, 13:52

Can we get an FHA Loan to someone in Foreclosure or a short sale?
I have some clients asking me questions about that and I don’t know the answer.
Advice me if anyone can.
Pinyo
September 5, 2008, 15:32

@Yanni — Please remind me not to use your company for mortgage. From your link:
“Fidelity Mutual Mortgage is a leading online provider of consumer Mortgage help and direct Mortgage financial.”
Ben
September 5, 2008, 15:58

Yikes…that’s awkward to not know the answers when supposedly touting themselves as the “leading online provider of consumer Mortgage help [].” Who does that? I would never ever say that I was a leader if I didn’t think I knew all the details.
Advice me if anyone can.