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FHA Mortgage Loan Basics

Federal Housing Administration (FHA) Background

The Federal Housing Administration (FHA) was established during the Great Depression, and tasked with increasing home construction, reducing unemployment and insuring government loan programs.

FHA offers affordable financing options with low down payment and flexible credit requirements. Their mission is to help borrowers purchase a home that they may not otherwise be able to afford. FHA loans offer favorable loan terms, higher loan limits, 30 year fixed repayment terms and flexible down payment options.

FHA does not provide loan funds

Contrary to popular belief, FHA does not actually provide loan funds. The mortgage is provided by a traditional lender, and FHA insures the loan by giving the lender a guaranty that their investment will not be lost if the borrower defaults. That's why an FHA loan is called a "government-insured" loan.

Since inception, the Federal FHA has insured millions of home mortgages. FHA continues to create home ownership opportunities, and these government-insured loans remain a wonderful option for first-time buyers, credit-compromised buyers, Seniors and those interested in neighborhood revitalization.

Basic FHA Loan Types and Highlights:

Section 203(b) 1-4 units single family loans

  • "standard" FHA loan and the largest of FHA's programs
  • 1-4 unit properties are eligible
  • offers flexible credit requirements
  • 3.5% down payment allowed
  • down payment may be a gift from specific sources

Section 234(c): Condo loans

  • provides mortgage insurance for individual condominium units
  • same credit, down payment and limits of the 203(b) loan apply
  • condo complexes must be approved through HRAP/DELRAP to be eligible

Section 203(k): Renovation loans, full and Streamlined

  • property rehabilitation loan programs
  • encourages community and neighborhood revitalization
  • only 1 mortgage loan is used for both purchase (or refinance) and renovation
  • 1-4 unit properties and condos are eligible; check for manufactured housing eligibility
  • required improvements include cost effective energy conservation standards and smoke detectors
  • Renovation Consult may be required

Home Equity Conversion Mortgage (HECM): Reverse Mortgage

  • FHA was the first to promote reverse mortgages nationally
  • allows homeowners to withdraw property's equity with flexible terms
  • lump sum, monthly payments, line of credit or a combination available
  • limited to homeowners 62 years of age and older

FHA also offers a Streamline Refinance and special loan modification/refinance programs such as the "Making Home Affordable Program."

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