The FHA or Federal Housing Administration is a government organization that acts as a branch of HUD to work at getting families across the United States into a home. Owning a home is still the American dream and getting an FHA loan can help make home ownership a possibility. FHA also offers the most competitive rates on the market today, and has great refinance programs available to those who currently have an FHA insured mortgage, and those who do not. FHA is currently the largest insurer of mortgages in the world.
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FHA loans are great for the first time home buyer as well as those that wish to buy another home but have very little to put down. FHA loans allow you to put down as little as 3.5%.
The other benefit on a purchase is that FHA will allow buyers to use funds for the down payment that are gifted to them. Down payment funds can be given by a family member, a friend, or maybe even an employer. Documentation is important to the FHA, so they request that a letter be given from the individual providing the funds, and that they have a vested interest in the individual buying the home.
FHA loans are also great for those who don’t have a lot of credit, or have been discharged from a bankruptcy for two years. Those who have very little credit can provide the lender with pay history from utility bills, and other alternative sources. FHA uses what they call “common sense underwriting”, which means that they don’t just look at the credit score, but they can look at compensating factors like good job time, consistent salary, and solid pay history on rent and more.
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It is also important to know that FHA loans have limits on what borrowers can get with an FHA loan. Loan limits with FHA will vary by state, city, county, and the property type. The state of Utah currently has 29 counties, so before applying for an FHA loan it would be wise to find out what the limits are for the county you live in, or will be buying in. Be sure to ask your mortgage loan professional about current FHA loan limits.
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Most single family residence loans with FHA require upfront mortgage insurance premiums, or MIP. Lenders are required to pay out the mortgage insurance ten days prior to when the loan closes. The upfront mortgage insurance goes into an escrow account to protect the government in the case that the borrower defaults on the loan, and is regulated by the U.S. Treasury Department.
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