FHA Mortgage Loans

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					by: Paul Anderberg

FHA mortgage loans are alternatives to conventional financing for your home purchase. The
FHA (Federal Housing Administration) helps to make low cost home loans available to
thousands of new and current homeowners each year. FHA mortgage loans require minimal
down payments and the interest rate is typically slightly lower than prevailing conventional rates.

The FHA currently insures more than 800,000 mortgage loans. This agency has helped originate
more than 33 million since it was created in 1934 as part of the New Deal. The FHA does not
fund the mortgage loans itself. It does insure the lender that it will not incur any loss if the
borrower defaults. In this way, lenders are encouraged to make loans to low and middle income
borrowers to whom they would not otherwise extend credit.

Buyers of single family homes can put as little as 3% down when obtaining an FHA mortgage
loan. Good credit history is not necessary, although is definitely a " ." Income to loan payment,
and to total monthly payment, ratio requirements are slightly less stringent than for conventional
mortgage loans. The FHA sometimes will also help finance the closing costs. Ask your lender
about this. Requirements for this kind of assistance vary widely from locale to locale.

This sounds pretty good, doesn't it? Well, "not so fast..." The FHA requires extensive property
inspections that cost the seller lots of time and money. Largely because of this, most sellers will
not accept an offer if the buyer intends to obtain FHA-insured financing. The acronym "FHA"
unfortunately has acquired bad connotations for many real estate professionals and their clients.

Also, the FHA severely limits how much the lender can charge in fees. The bank cannot lose
money because of the FHA insurance. However, it cannot profit as much as when it commits its
money to other mortgage loans. Lenders have to be FHA-approved in order to make FHA
mortgage loans. Few lenders choose to become FHA-approved.

However, there is a big exception to this circumstance. The FHA serves locales (and, of course,
the people who wish to obtain financing for homes in these areas) that would not otherwise be
attractive to lenders. Most very large, big city lenders are FHA-approved, and a significant
portion of the home loans that they originate are FHA mortgage loans.

If you intend to move into your own home in the country or in an "upper middle class" suburb,
the FHA probably won't be of use to you. But perhaps you want to live right in a major
metropolitan area with all its amenities close by. If so, and if a large down payment is a problem,
an FHA mortgage loan could be a great way for you to finance the purchase of your home.

This article was posted on October 02, 2006

				
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