There is a sub-group of the U.S. Department of Housing and Urban Development (HUD) that is known as the FHA which is the Federal Housing Administration. The FHA came about as a by-product of the National Housing Act which was passed in 1934.
Actually, the FHA does not lend money, nor does it build houses. This administration is in existence to help lenders mitigate their losses should the property owner default.
Mortgages backed by FHA are often called "FHA loans" even though it's somewhat of a misnomer. A more appropriate name would be "FHA-insured" loans because that better describes the FHA's function.
With the FHA's guarantee, mortgage lenders are enticed to make loans on which they would otherwise pass and the explicit backing from the government holds mortgage rates low for borrowers.
If a borrower has less than 20% for down payment, he may attempt an FHA loan. Then, mortgage insurance payments will likely be required. Such payments (if the FHA loan is greater than 80%), are 1.5% against the loan and paid at closing. There will also be required is an insurance payment of 0.50% annually and paid monthly.
The upside of this requirement is that once the home owner is at 78% of the property value, the mortgage insurance requirement is over. Also, if homeowners have 15 year FHA loan with a fixed rate, they don't need the mortgage insurance.
Usually, the rates for FHA are higher than for other mortgage lenders. However, it could be a more affordable and actually a better deal. This would best relate to those with a lower than 680 credit score. This is relevant because of the new risk based loan pricing guidelines outlined by Freddie Mac and Fannie Mae.
Source FHA Loan Wikipedia, April 1, 2008 http://en .wikipedia.org/wiki/FHA_loan - 15224
Actually, the FHA does not lend money, nor does it build houses. This administration is in existence to help lenders mitigate their losses should the property owner default.
Mortgages backed by FHA are often called "FHA loans" even though it's somewhat of a misnomer. A more appropriate name would be "FHA-insured" loans because that better describes the FHA's function.
With the FHA's guarantee, mortgage lenders are enticed to make loans on which they would otherwise pass and the explicit backing from the government holds mortgage rates low for borrowers.
If a borrower has less than 20% for down payment, he may attempt an FHA loan. Then, mortgage insurance payments will likely be required. Such payments (if the FHA loan is greater than 80%), are 1.5% against the loan and paid at closing. There will also be required is an insurance payment of 0.50% annually and paid monthly.
The upside of this requirement is that once the home owner is at 78% of the property value, the mortgage insurance requirement is over. Also, if homeowners have 15 year FHA loan with a fixed rate, they don't need the mortgage insurance.
Usually, the rates for FHA are higher than for other mortgage lenders. However, it could be a more affordable and actually a better deal. This would best relate to those with a lower than 680 credit score. This is relevant because of the new risk based loan pricing guidelines outlined by Freddie Mac and Fannie Mae.
Source FHA Loan Wikipedia, April 1, 2008 http://en .wikipedia.org/wiki/FHA_loan - 15224
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