3d Part 2: FHA Loan Program

FHA Loan Program

The FHA Loan Program is a mortgage insured by the Federal Housing Administration. Borrowers opting to pay for mortgage insurance protects the lender in case the borrower ever defaults on the loan. This also protects the borrower as well, as the Federal Housing Administration would be paying for that default. Due to these guidelines, the FHA Loan Program is typically more used by first-home buyers. Similar to USDA Home Loans, FHA Homes must be safe and sanitary for the home-buyer. This means that there are requirements for water tests, as well as other important inspections such as the attic, to insure that there is proper insulation as well as evidence of leaks from roof damage.

FHA Loans have a lower guideline for what’s required for a down payment than Conventional Loans. The flip-side is that there is also a required up front premium and monthly premium for the mortgage insurance through FHA.

Another advantage of FHA Loans is that they are assumable. Assumable loans are essentially when the borrower takes over a seller’s home loan. These have their own advantages and disadvantages, but if the borrower is able to assume a low-interest loan, it’s generally easier to process that transaction.

And lastly, if the borrower is looking to re-finance their FHA Home loan, another advantage is the ability to streamline refinance. This basically means that the borrower can refinance their home without needing to verify asset and income documentation, which shaves a lot of time in the refinance process.

• Pros
  • Lender and Borrower are both protected by purchasing through the FHA Loan Program due to Mortgage insurance.
  • This program allows for a lower down payment on the home (3.5%).
  • Can also use a non-occupant co-borrower to help with qualifying for the debt-to-income requirement for the loans.
• Cons
  • Due to the mortgage being insured, this cost is being paid for by the borrower. This results in increased costs due to the premium, which may be upfront and/or monthly payments.
  • There are strict guidelines on homes being flipped and purchased through the FHA Loan Program in under 6 months. Any evidence of flipping has the possibility of making the home ineligible for purchase.
  • Mortgage Insurance is required on all purchase and will be required for the entire life of the loan.