Complete Guide to FHA Loans

An FHA loan is a mortgage loan that is originated by a FHA-approved lender and insured by US Federal Housing Administration (FHA) mortgage insurance backed mortgage loan. One of its primary purposes is to mortgage loans to borrowers with limited down payment percentages that often required by conventional lenders.

The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI. The program has since this time been modified to accommodate the heightened recession.

Pros & Cons of FHA Loans

Pros	Cons
Target first time home buyers Lower down payment (3.5%) Down payment can be in form of gifts Lower FICO score Often has lower interest rate Less stringent underwriting	No investment purchase allow Require upfront mortgage insurance Require monthly mortgage insurance Subject property must meet safety standards Additional certification required for condo/townhouse complex

Because of FHA upfront mortgage insurance (UFMIP) which is currently at 1.75% of the loan amount and its monthly mortgage insurance (MIP) which depends on amount of down payment, combined monthly payments are often higher comparing to conventional loans. If you are not sure if an FHA loan is right for you, talk to our licensed mortgage loan originators. We will analyze your scenario and advice which loan product is better for you.