FHA Mortgages
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Q: What is a FHA mortgage?

A: A FHA mortgage is a form of insurance. The FHA does not lend money; private lending organizations, such as banks, credit unions, or savings and loans, lend money. A FHA-approved mortgage is insured to the lender in case the homebuyer defaults on the loan.

Q: What are the advantages of a FHA mortgage?

A: There are many advantages of a FHA mortgage. Typically, only a 3 percent down payment is required to secure a FHA mortgage. Unlike conventional mortgages, the money for down payment does not have to be verified as the buyer's money; it can be a gift to the home purchaser from outside sources. In addition, the credit qualifications for a FHA mortgage are often less stringent than qualifications for conventional mortgages. Bankruptcy or foreclosure does not necessarily disqualify a borrower from approval if the processes have been completed within the required time period.

Q: Are FHA mortgage processes complicated?

A: No more so than conventional mortgage processes. FHA financing procedures have slimmed down in the past 20 years. In some cases, it is easier to qualify for a FHA mortgage than it is for a conventional mortgage.

Q: Who is eligible for a FHA mortgage?

A: Anyone who meets the credit, income, and employment requirements is eligible for a FHA mortgage. U.S. citizenship is not required for a FHA mortgage. The property secured with the mortgage must be the purchaser's primary residence. A social security card is necessary to qualify for a FHA mortgage.

Q: What is mortgage insurance, and how does it apply to FHA mortgages?

A: Mortgage insurance is required to secure a FHA mortgage. Insurance money is collected by the lender (the bank, credit union, or savings and mortgage) and paid to the FHA. If a buyer defaults on the mortgage, the money will be returned to the lender in the form of insurance against the default. Mortgage insurance costs are typically 1 percent of the total mortgage. Private mortgage insurance may be required until 20 percent of the equity in the home has been paid.

Q: What are the different types of FHA mortgages?

A: Like conventional mortgages, there are several different types of FHA mortgages. A fixed-rate mortgage secures an interest rate at the time of purchase and remains constant for the life of the mortgage. There is also an adjustable-rate mortgage (ARM). The interest rate on an ARM fluctuates throughout the life of the mortgage, mirroring the current national index. There is also a graduated-payment mortgage (GPM), which requires a down payment and has negative amortization.

Q: What are the interest rates on FHA mortgages?

A: FHA mortgage interest rates are on par with the national average for conventional mortgages. FHA mortgage interest rates reflect current market conditions. A buyer may also use points when securing a FHA mortgage. "Points" lower the interest rate, and must be used as a down payment or financed through the mortgage.

Q: What are the expenses of a FHA mortgage?

A: When purchasing a house with a FHA mortgage the buyer is responsible for the following: Down payment (usually no more than 3 percent), appraisal fee, escrow, mortgage origination fee (typically 1 percent of base mortgage amount), recording fees, credit report charges, title insurance policy fees, MMI impounds, hazard insurance and reserves, MIP (mortgage insurance, which can be financed), and property taxes.