What is FHA loan?
The Federal Housing Administration (FHA), a wholly owned government corporation, was established
under the National Housing Act of 1934 to improve housing standards and conditions. FHA is not a loan,
It’s an Insurance! If a home buyer defaults, the lender is paid from the insurance fund.FHA's mortgage
insurance allows individuals to qualify who may have been previously denied for a home loan by
conventional underwriting guidelines. FHA helps low and moderate-income families purchase homes.
FHA loans, Student loans, Commercial loans, Payday loans, Car loans, ARM, PITI, HELOC, Balloon
Mortgage, reverse mortgage
Home mortgages are important part of the loans universe but we will concentrate here On a specific one
called FHA. The Federal Housing Administration (FHA), a wholly owned government corporation, was
established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal
was to provide an adequate home financing system through insurance of mortgages, and to stabilize the
FHA is not a loan, It’s an Insurance! If a home buyer defaults, the lender is paid from the insurance fund. An
FHA loan allows you to buy a house with as little as 3% down payment, instead of the higher percentages
required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for
first time buyers, or anyone with a shortage of down payment funds, to buy a home. It is not a program
reserved only for first time home buyers. You can buy your third or fourth home with an FHA loan. The
only stipulation is that you may only have one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by keeping the initial costs down. By serving
as an umbrella under which lenders have the confidence to extend loans to those who may not meet
conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have
been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders
against loan default on mortgages for properties that include manufactured homes, single-family and
multifamily properties, and some health-related facilities.
The two very basic terms you need to understand is PITI and Long Term Debt. PITI stands for Principle,
Interest, Taxes, and Insurance. It is with relations to your Mortgage and property housing total monthly
cost. Your maximum PITI should not exceed 29% of your gross monthly income.
Long term debt includes such things as car loans and credit cards balances.
In order to qualify for FHA loan your PITI + Long Term Debt should not exceed 41% of gross monthly
This is much lenient terms compared to conventional loan terms of maximum
PITI of 26% - 28% and Total PITI + Long Term Debt of 33% -36%.
Qualifying for an FHA loan you need the followings:
- Good credit history that shows you meet your financial obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly income.
- Sufficient cash down payment at time of closing. 3% of the total cost.
- Closing expenses cost of 2%-3% of the price of the house.
(Homeowner’s Insurance, Attorney’s fees, title fees, and title insurance,
Private Mortgage Insurance if you are paying less than 20% down, the loan
origination fee, and a fee that goes into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD - US Department of Housing and Urban
Development, mortgage specifically designed for low and moderate-income families who are trying to make
the transition into home ownership. At the time it is issued, the ARM usually has an interest rate several
percentage points below a fixed rate mortgage. The interest rate can change as market conditions change. If
interest rates go up, so does your mortgage payment. If they come down, your mortgage payment comes
The reverse mortgage is often of interest to senior homeowners. This loan provides cash for living, health or
other expenses. Payments are made to the borrower in a lump sum or monthly. Most reverse mortgages are
issued to those 62 and older who own a debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your home to pay for home improvements,
debt consolidation or other financial goals. With an acceptable debt, credit and employment history, you
may be able to borrow up to 85% of the appraised equity in your home.
Balloon Mortgage - the buyer pays interest for three to five years on a balloon mortgage. After that the
entire principal comes due all at once.
Credit Dispute Letter