FHA Mortgages in some form have been around since June 27, 1934. The Department of Housing & Urban Development folded the Federal Housing Administration (FHA) under its umbrella in 1965.
How FHA Mortgages Work
Now, FHA does not make mortgage loans or guarantee mortgage loans. It insures mortgage loans. The mortgage insurance removes or minimizes the default risk mortgage lenders face when buyers put down less than 20 percent. FHA Approved Lenders Originate the mortgage loan and make sure it is insured by the FHA.
Blemished Credit History
If your credit is less than perfect, FHA might be the loan for you. You may qualify for an FHA mortgage loan even though you have had financial problems.
- Credit scores can be lower than those for a conventional mortgage. (FHA has no minimum score)
- Bankruptcy. You can obtain an FHA loan after a Chapter 7 Bankruptcy two years from the date of your bankruptcy discharge as long as you’ve maintained good credit since your debts were discharged.You can do an FHA refinance loan while in Chapter 13 Bankruptcy provided you have been in the Bankruptcy for at least one year and all of the payments have been made on time. You must also have the courts approval under a Chapter 13 Bankruptcy to refinance to an FHA loan while in bankruptcy.
- Foreclosure. If you keep your credit in excellent shape since a foreclosure, an FHA mortgage will be available to you three years from the final date of your foreclosure.
Competitive Rates & Terms
Even if you have less than perfect credit you still get an A-paper like interest rate.
- The adjustments to the interest rate for an FHA mortgage are much lower than a conventional mortgage for lower credit scores.
- Mortgage insurance is funded into the loan, meaning the premium is added to the loan balance instead of being paid out-of-pocket. In addition, a small portion for the mortgage insurance premium is added to the monthly payment, but many times is far less than private mortgage insurance premiums.
- Borrowers can refinance 97.75% of the appraised value of the home or 96.5% of the purchase price. Then just put down just 3.5 percent of the purchase price of the home. In some instances, when combined with other types of loans, the down payment can be zero.
- Allowable debt ratios are higher than the debt-ratio limits imposed for most conventional mortgages.
FHA mortgages are available to all U.S. Citizens but are used most often by first-time home buyers and low- to moderate-income buyers. However, there are no income limit qualifications.