FHA loan programs are particularly beneficial to those buyers with less available cash.
An FHA loan is insured by the Federal Housing Administration
, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans. All FHA loans require an upfront mortgage insurance premium along with a monthly mortgage insurance premium. FHA loans also have more flexible underwriting guidelines which aid in loan qualification.
Some of the other benefits of FHA financing:
- Only a 3% down payment is required.
- Upfront Mortgage Insurance Premium can be financed.
- Lower monthly mortgage insurance premiums.
- More flexible underwriting criteria than conventional loans
- FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of the mortgage).
- Loans are assumable to qualified buyers.