FHA stands for the Federal Housing Administration and is part of the U.S Department of Housing and Development. Basically, the FHA is around to better help the general public obtain home ownership. The FHA does this by insuring loans which then allows banks to offer affordable financing solutions to the public. The banks can do this because with the government insuring the loan there is little risk. First and foremost, it is important to understand the role FHA has in loan origination.
The FHA does not actually make the loans that allow you to buy your home. That is the job of the bank that you are working with. What the FHA does, is insures the bank that if for some reason you default on your payments they will be covered. So basically it gives the banks insurance which then in return makes you less of a risk. Once the FHA has insured your loan and the loan has been made, often times it is sold in the secondary market. The buyers of these loans typically are either private investors ( mainly larger banks ) or GSE’s (Government Sponsored Enterprises, aka Freddie Mac, Fannie Mae) and Ginnie Mae which is separate as it is wholly government owned .Your loan is then grouped/pooled with other home loans “securitized” and sold to investors as a single investment. What this whole secondary market does in short, is allows banks to have an avenue to sell their existing loans so they can make new ones to buyers like you…the grease that keeps the wheels moving.
So now we got the process down, so how does this relate to you as the buyer?
FHA loans allow buyers to put down as little as 3.5%. This down payment can be received as a gift from a family member, employer or charitable organization. They also are typically much more flexible in terms of credit scores when compared to a conventional loan. If the applicant has little or no credit you can have a blood relative co-sign the loan. The FHA loan usually comes with an attractive interest rate which lowers the cost of home ownership. Whenever you go to sell the home, the FHA loan could be assumable to the next buyer (subject to meeting credit standards). Lastly, the FHA wants people to keep their house and in the event of tough times they can offer clients many different and helpful options.
One last thing to consider, nothing is free! There are various costs associated with obtaining an FHA loan including and not limited to monthly mortgage insurance premiums and up front mortgage insurance costs.
If the benefit outweighs the cost this may be a great option to consider.
- Low down payments
- Easy credit qualifying
- 1-4 unit homes
- You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.
- FHA has financing for mobile homes and factory-built housing.
FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs – all in one loan.
Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer “yes” to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash.
Need advice? Contact me today at 207-831-1903