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What is FHA Mortgage Insurance?

What is FHA Mortgage Insurance

Looking to buy a home for the first time, but having a rough time getting a loan approved?

You may be able to get assistance through the FHA’s Mortgage Insurance program.

What is the FHA?

FHA stands for the Federal Housing Administration. The FHA is a branch of the Department of Housing and Urban Development (HUD).

FHA has a number of functions, but one of the primary ones is to dispense the government’s official mortgage insurance for first time home buyers.

How can mortgage insurance help you get a loan?

As a first time home buyer, you are seen as a big unknown, and therefore a possible risk, by most lenders. They have no idea how you’ll treat the home and if you’ll keep up with your payments.

When a lender encounters a complete unknown, they are most likely to pass over you and wait for someone with a stable record—unless they have some kind of assurance that they will be paid.

FHA’s Mortgage Insurance program covers new home buyers with good credit standing so that the lender will have this security. This makes the lender look at you in a different light; since the government has agreed to back you as a good investment, the risk is removed for the lender, and they may be willing to give you a chance.

Again though, your credit is crucial and the government will not back you if you have bad or no credit, so work on building good credit before you try to get into the FHA Mortgage Insurance program.

What kinds of mortgages can you get insurance for? The most common program is 203 (b), which is for new homes, but there are a number of others, including program 234 (c) for condominiums.

House or Condo

The house or condo which you are applying for insurance for will have to be your primary residence, and for each type of home, there are more specific guidelines which you will have to explore.

What else can you do to make it easier to buy a home in the recession? Along with procuring FHA Mortgage Insurance, you can look into zero down payment homes, in particular those in rural areas.

The USDA 100% Financing Program is a great way to get a new home in a rural spot. Since these areas have emptied out, there are incentives for buyers to repopulate them, like zero down payment and lower closing costs.

Many of the homes in rural areas are cheaper than homes in urban areas too, so you’ll have less to pay in the long run.

Things are tough in the recession, but you don’t need to become discouraged if you are a new home buyer in good credit standing. Lots of other people are in your position, and it’s to the benefit of the government and lenders that you buy a home.

It helps the lenders, bolsters the economy, and therefore is good for the government too. That’s why incentives like this program are in place. So check into it and see if you can buy a new home today!

FHA Streamlined Refinance

FHA Streamlined Refinance

The FHA does permit streamline refinances on insured mortgages. The term “streamline” refers to the amount of documentation and underwriting which needs to be performed by the lender, and does not mean there are no costs involved in the transaction.

The requirements for a FHA streamline refinance are:

  1. The mortgage to be refinanced must already be an FHA insured mortgage.
  2. The mortgage must be current, with no late payments in the last 12 months.
  3. The refinance must result in a lowering of the borrower’s monthly payments.
  4. Cash out refinances are not allowed under the FHA streamline program.
  5. Borrower should be aware of the significant difference between “no cost” (Lender pays fees but charges you a noticeably higher interest rate) and “no out-of-pocket cost” (cost added to your new loan).

REFINANCE: FHA Streamline Refinance Basics

This refinance option is considered streamlined since it allows you to lower the rate of interest on your current property mortgage loan quickly and frequently without an appraisal.

FHA Streamline Refinancing also reduces the amount of paperwork that needs to be filled out by your mortgage lender, saving you precious time and money.

To qualify for a Streamline Refinance your original home mortgage loan must be an FHA mortgage loan in good standing and the refinance needs to lower your monthly interest payments.

Refinancing with this option reduces your monthly expenses by lowering your mortgage payments, also keep in mind that doing a cash-out is not an option with the FHA Streamline Refinance.

This works well for borrowers who are in good financial standing without any substantial debt since it permits you to have a little additional money each month that can be put to good use elsewhere.

What Is A FHA Loan?

What Is A FHA Loan

The Department of Housing and Urban Development (HUD) was created in 1965. HUD over sees the Federal Housing Administration, recognized commonly as FHA.

The FHA’s duty is to administer government loans and to set the FHA loan requirements for the government loan guarantee program.

Many first time home buyer’s ask, What is a FHA Loan?, without ever getting a clear concise answer, we’ll give that to you here. The main purpose of FHA is to allow buyer’s who do not qualify for conventional or “A” loans an opportunity for home ownership.

Without the reduced FHA loan requirements, millions of homeowners would not be able to participate in the “American Dream”.

FHA gives lenders a government guarantee that as long as they, “the lender”, gave the loan in good faith and followed all FHA loan requirements then the government will pay the lender back for losses due to foreclosure, etc.

Credit Problems?

Buyers who might have some credit problems or in fact they just do not have any of the traditional credit (car loans, credit cards, etc.) might be able to obtaining FHA financing.

Additionally, Federal Housing Administration home loans are assumable, allowing any person who qualifies, the ability to take over your mortgage without the extra cost of getting a new mortgage.

Also, the lender or seller must pay for part of the closing costs (called non-allowable costs) associated with obtaining an FHA loan. The borrower on the other hand “is” allowed to roll all allowable costs into their new mortgage loan making the amount they need to close substantially lower.

Borrowers will find that FHA “mi” (mortgage insurance) is lower for an FHA loan versus a conventional loan with 3.5% down. Lastly, FHA loan requirements often require less income to qualify as these loans can exceed conventional debt ratios of 28/36% as their standard is 31/41%.

#1 FHA Program

The #1 FHA program by popularity was created just for first time home buyer’s is called the 203b. This is your common fixed rate loan for between 1-4 family’s who plan to owner occupy the property and only requires a minimum down payment of 3% from the borrower (s).

The 203b loan also permits 100% of the money needed for closing to be a gift from a relative, organization, non-profit or government agency. Whether the gift is a loan or not, you just need a letter for the lender from the family member stating it is a gift and does not need to be paid back.

Many individuals make the mistake of assuming FHA loans are only open to first-time home buyers. This is just not true. FHA mortgages are available to anyone, whether your buying your first or third home and can be used to buy or refinance a home.

If you are currently looking to refinance a home loan the current mortgage loan does NOT have to be a FHA loan.

The large disadvantage to FHA loans is that the FHA loan requirements limit the size of the loan a borrower can obtain. Others might try to show you that the 1.5% FHA upfront mortgage insurance premium (MIP) is a disadvantage.

However this amount makes just a very small increase in the borrower’s month payment and is partially refundable in certain cases. If you’re still looking for additional information on what is an FHA loan? or FHA loan requirements continue here.

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