Many Americans dream of owning their own homes, but few families are able to pay cash for them. Many people who could not otherwise afford to own a house become homeowners with the help of FHA mortgage insurance programs.
Helping people obtain financing for their homes is one of the chief purposes of FHA. FHA is the Federal Housing Administration. It is part of the U.S. Department of Housing and Urban Development (HUD).Once you have found the home you want to buy, you must decide how to finance your dream. This booklet gives you information about FHA programs to help you meet that challenge. It explains:
- How FHA mortgage insurance works
- How to shop for a HUD-approved lender.
- How to apply for an FHA-insured loan.
- How your payment schedule will operate.
- What restrictions apply to FHA-insured mortgages.
- Which specific FHA program can best help you.
How FHA Mortgage Insurance Works
FHA mortgage insurance allows a homebuyer to make a modest downpayment and obtain a mortgage for the balance of the purchase price.
The mortgage loan is made by a bank, savings and loan association, mortgage company, credit union, or other FHA-approved lender. FHA insures the loan and pays the lender if the borrower defaults on the mortgage. Because the lender is protected by this insurance, it can offer more liberal mortgage terms than the prospective homeowner might otherwise obtain.
FHA does not make direct loans to help people build or buy homes.
Who Can Get an FHA-Insured Mortgage
Almost any individual who has a satisfactory credit record, enough cash to close the loan, and sufficient steady income to make monthly mortgage payments without difficulty can be approved for an FHA-insured mortgage.
Generally, only people who will reside in the property are eligible for FHA-insured mortgages. However, investors can participate in FHA's Section 203(k) rehabilitation insurance program.
FHA sets no upper age limit for the borrower, nor does FHA require that the borrower have a certain income level to buy a home at a certain price. Income is simply one of several factors that help a lender and FHA determine whether the borrower will be able to repay the mortgage.
FHA mortgages are available to individuals regardless of race, creed, religion, sex, or marital status.
terms are available to qualified veterans purchasing a single-family home. The veteran must present a Certificate of Veterans Status from the Department of Veterans Affairs. There is no limit on the number of times an eligible veteran can use his/her eligibility in FHA programs.
Types of Mortgages FHA InsuresHUD insures mortgages to buy existing homes, to improve homes, to purchase a newly built home, and to refinance existing indebtedness. FHA-insured mortgages are available for many types of properties, including:
- One-family residences.
- Two-, three-, and four-unit properties.
- Condominium units.
- Houses needing rehabilitation.
- Fixed rate, level payment mortgages.
- Graduated payment mortgages.
- Growing equity mortgages.
- Adjustable rate mortgages.
Each of these mortgages is explained later in this brochure.
Shopping for an FHA-Insured Loan
After you have found the home you want to buy, you should call various lenders listed under "Mortgages" in the Yellow Pages to find the lender offering the best terms.The costs associated with a loan can vary significantly from one lender to another. It pays to comparison shop for a mortgage. The most important factors to consider in comparing loans are:
- Interest Rate
- Discount points
- Closing costs and other fees, such as charges to originate the loan, commitment fees to "lock in" the mortgage terms you and the lender have agreed to for a certain period, and mortgage insurance premiums (MIP).
- Annual Percentage Rate.
All of these factors are negotiated between you and your lender. FHA does not establish minimum or maximum amounts for the interest rate, discount points, or most processing fees you pay the lender.
The interest rate a borrower pays for the mortgage is negotiated between the borrower and the lender. Interest rates fluctuate daily, depending on conditions in the mortgage market. It is always a good idea to check with several mortgage lenders to make sure you are getting the best interest rate available.
The following chart shows how the principal and interest on your mortgage will vary according to the interest rate.
Monthly Payment for Principal and Interest on a 30-Year Fixed Rate, Level Payment Mortgage