FHA Mortgage Loans:
Your Dream Home With 3.5% Down

FHA mortgage loans are the second most widely used form of home loans in the market place.

The Federal Housing Authority (FHA) is an agency created back in the 1930’s during the Great Depression - a period that had severely impaired the housing market, bringing home building as well as home mortgage lending to a stand still.

FHA is part of the Department of Housing and Urban Development – mostly common know as HUD.

FHA Is An Insurance Organism NOT A Mortgage Loan Institution

FHA does not make loans directly, instead it is an insurance organism that aims to stimulate the housing sector at the same time it offers some level of security to mortgage lenders.

FHA primary role is to provide the private lenders insurance – and therefore bust the level of confidence in the market place – against the lenders losses in case of borrowers’ default.

Upon insuring the finance institutions in case of foreclosure, the FHA mortgage loans make them much more marketable papers and make banks as well as other institutions [like retirement funds] willing to trade them back and forth in the so called “secondary market” which means investor who do not make the loans however buy them after closing as an investment.

And, in the process, the loans become more affordable and easier to consumers like you and me to get mortgage loans.

FYI – it is very common that at the day of the closing, whoever originated the loan will already have sold it to somebody else.

Some homebuyers feel a bit disappointed: Don’t be!

It is called “secondary market” and it keeps the liquidity of the mortgage loan market vibrant.

The loans are sold to other investors and, in turn, the guys who have just orchestrated you loan now have that money back to help another homebuyer!

Investors see FHA mortgage loans as a safer investment compared with other financing deals like stocks and many of them have billions of dollars of their portfolio invested in the FHA loans.

More competition equals better terms and rates. Better terms and rates equal more people willing to buy homes and will be able to afford to do so.

Widely Used: FHA Loans Take Second Place  Of All Loans Made In The US

FHA mortgage loans enjoy an ever-growing popularity.

There are two reasons for such popularity: One is that you can buy a home with as little as 3.5% of down payment.

Secondly, FHA loan guide lines are more lenient which allow more low-to-mid income as well as first-time buyer to qualify.

Many home buyers do not have a large amount of money for their down payment …and do not want to wait until they do!

You can get into the home of your dreams with only 3.5% (Three and a half percent!) of the purchase price.

However I like to caution that there are some expenses involved.  First it will have an upfront fee of 1.75% of the amount financed - which is wrapped into the loan itself. AND then you need to pay  Private Mortgage Insurance (PMI) - again, calculated on  the amount of the loan every year – for as long as you own the house.

Private Mortgage Insurance (PMI)

FHA mortgage loans carry an insurance fee called Private Mortgage Insurance (PMI).

The PMI percentage tends to vary from time to time. However what keeps constant is that it is calculate on the amount of the loan and then divided up by 12 and then it will be added to the monthly payments

you will have to pay PMI for is long as you own the house OR, alternatively, when you refinance the house. 

Used to be that they would wave the PMI after the home owner built some level of equity - that's no longer the case.

Every month that you pay your mortgage, part of it is 'Interest' and part of it will go towards the 'Principal.'

Over a period of years, the Principal will accumulate some equity. Also, you may pay some extra money above the scheduled amounts.  

Historically, houses home increased in value over time.

So, it is a logic thing to seek a 'refinance' - specially after the equity you've accumulated + the house increased value comes around 80% of the value of the new value of the house.

It is obvious that it all has to make sense - you do NOT want to refinance when the interest rates are higher than your original loan!

Limit For A FHA Backed Loan

The limit for FHA mortgage loans will vary depending where the home is located.

Smaller cities tend to have lower ceiling and large metropolitan areas like New York City, San Francisco, Hawaii, the US Virgin Islands where real estate prices are historical pricier will see the higher amounts financed.

Even though FHA mortgage loans are available for homes priced below $50,000, it is erroneous to assume that they will only back purchase on the low end.

You might be surprised to know that they also back loans to purchase homes on the high end as well.

FHA takes in consideration the Metropolitan Statistical Areas (MSA) as well as the housing value of the county where the subject property is located.

Currently Congress has authorized maximum is $ 729,750 for any given home loan.

However this amount is available for MSAs where real estate prices have been historically high. Many other locations will have proportionally lower maximum amounts.

Consider that this is the “amount financed” so, if you were to add to it the “down payment amount” the total “purchase price” can be a bit higher.

First Time Buyer Bridge To Ownership

In the Atlanta MSA that amount ($ 729,750) can buy you an excellent home with a swimming pool and no less than a 3car garage, 4 or 5 bedrooms, a Jacuzzi in the master bedroom, modern kitchen with stain less steel appliances and a basement to die for…

However in NYC, Honolulu or San Francisco it quite possibly will not go that far.

I guess Congress has to cut it somewhere – and someone will be left out of the range…

Actually it is lots of good folks in these MSAs of high home priced that will be out of range even though we are talking about close to ¾ of a million dollars.

Nonetheless FHA mortgage loans will always be among the favorite home loans especially for first time buyers.

Down payment funds for FHA mortgage loans can be from you own funds, a gift from family or employer or a DPA (down payment assistance program) – Please click here to learn more

JC Fagundes, Head Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.
Ph: 404 801 4141

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