What is the FHA? What is FHA insurance?


In the world of banking, mortgages, and first time home ownership, there’s a lot of technical jargon to learn, especially if the latter describes you.

If you are applying for a mortgage for the first time, then you may have heard of the FHA or FHA loans. What are they? And do they apply to you?

What is the FHA?

FHA stands for the Federal Housing Administration, a smaller section of the U.S. Department of Housing and Urban Development. It was created in 1934, and it has been serving both homeowners and mortgage lenders since. The FHA also costs no taxpayer dollars to run; instead, it uses the insurance money paid by homeowners to operate.

What does the FHA do?

The FHA provides mortgage insurance to prospective homeowners at a reduced interest rate and to homeowners with a lower credit score. This insurance protects lenders in the case that the homeowner defaults on their mortgage and can no longer pay. As a result, a greater population of people can apply for a mortgage that they normally wouldn’t be able to afford.

What are the FHA insurance requirements?

Usually, only individuals with a low credit score (500-579) and those who can’t afford more than a 20 percent down payment are eligible for FHA insurance. As a result, borrowers with FHA loans can put up a down payment as low as 3.5%. While this may seem unfair to those with average or exemplary finances, there is a catch. Borrowers of FHA insurance must pay two mortgage insurance premiums, a monthly premium that is figured into the mortgage payment, and a premium that is upfront  or can be financed into the mortgage. These premium amounts vary according to the loan amount, the lender’s loan-to-value ratio, and length of the loan.

It may not apply to everyone, FHA insurance allows for homeowners to apply for a mortgage when they normally wouldn’t be able to. Additional research must be done for lenders and loans that meet your specific needs, but if the option is available, pursue any opportunity that will make it easier for you to purchase your home.

Source: Neighborhood Link - Sabrina Robinson
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