a new home is an exciting and stressful time. Finding the
right home for you and your family requires a great deal of
work and decision making. However, finding the right mortgage
is just as important as finding the right home. See our Finance
take advantage of FHA loans when purchasing a home.
mortgage can be an attractive option for many first-time homebuyers,
as down-payment requirements for a FHA
mortgage can be as low as 3 percent. However, you dont
need to be a first-time buyer to take out a FHA mortgage;
the only stipulation is that a purchaser may only have one
FHA mortgage at a time.
of the FHA
or the Federal Housing Administration, was established by
the government to improve housing conditions for Americans.
The government established the FHA mortgage program in 1934
to improve existing housing standards and conditions. Prior
to 1934, a down payment was typically 50 percent of the homes
price and payments were stretched out between only 1-5 years.
You can learn more about FHA loans from the Department of
Housing and Urban Development.
a FHA Mortgage Works
does not lend the money; it simply insures that the total
mortgage will be paid to the lender if the buyer defaults.
It is always the decision of the private lender (a bank, credit
union, or savings and loan) to decide whether or not they
will lend the money.
mortgage program tends to be more forgiving than conventional
mortgages in terms of past credit history. A bankruptcy discharged
as little as two years ago may not hinder a homebuyer from
qualifying for the FHA program.
FHA mortgages do not require more than a 3-5 percent down
payment. Unlike traditional loans, this money may also be
a gift to the homebuyer and does not need to be secured as
the homebuyer's own money. Often, there are "points"
associated with FHA mortgages that are usually worth about
1 percent of the total mortgage value. These points are paid
to lenders to help lower the interest rate of the mortgage.
will also have to pay PMI (private mortgage insurance) on
the mortgage. PMI is used to ensure that the total amount
of the mortgage will be paid to the lender if the buyer defaults.
Usually, a PMI will not be put into effect until 20 percent
of the mortgage has been paid.
costs on FHA (or conventional loans) are usually between 2-3
percent of the total mortgage amount and are the responsibility
of the buyer. However, FHA closing costs can be financed into
the total amount of the mortgage and paid off accordingly.
more about the recent
reforms to FHA loans.
For a FHA Mortgage
approved for a FHA mortgage, you must have a satisfactory
credit history, which shows your commitment to paying off
debts in a timely manner. Also, you must be able to prove
that the total monthly mortgage payment will be less than
29 percent of your monthly income. The number arrived at after
multiplying your total monthly income by 29 percent is referred
to as PITI, or principle, interest, property taxes, and insurance.
The PITI amount is the highest amount that your monthly mortgage
payments may be. Furthermore, long-term debt, such as car
loans and credit card balances, in addition to the monthly
PITI amount cannot be more than 41 percent of your total monthly
income. More information about loan qualifications is available
from the FHA.
these qualifications may seem a little stringent, they are
actually more lenient than traditional mortgage qualifications.
The decreased down payment makes this type of mortgage even
more desirable for many people.