Oct
15
FHA Home Loans Emerge As A Cheap Alternative For Low-Credit Score Homeowners
Filed Under Mortgage Refinance
The U. S. Department of Housing and Urban Development (HUD) has a sub group called the Federal Housing Administration (FHA). The FHA is a by-product of the National Housing Act passed in 1934.
Actually, the FHA does not lend money, nor does it build houses. This administration is in existence to help lenders mitigate their losses should the property owner default.
Therefore, even though it is an inappropriate label, FHA backing is referred to as an FHA loan. For correctly referring to the function of the FHA, the term “FHA-insured” should be used.
Because of the FHA guarantee to back loans, more lenders might grant loans that they would not consider without such backing. With this backing, lenders could feel more secure about granting the loan. Borrower rates may stay lower in such situations.
FHA loans are often used by borrowers with less-than-20-percent downpayments and, therefore, tend to require mortgage insurance payments. For FHA loans above 80%, mortgage insurance rates are 0.50% annually (paid monthly) with an up-front payment of 1.5% against the loan size and due at closing.
When the mortgage loan balance for any homeowner gets to 78% of the value of the home, the yearly mortgage insurance requirement is no longer in effect. Also, if the property owner has a fixed rate 15 year FHA loan , this insurance isn’t required.
FHA loan rates have typically been higher than comparable mortgage loans. However, because of the recent new Freddie Mac and Fannie Mae risk based loan pricing, people who have credit scores lower than 680 may find that FHA can be less expensive and more appropriate.
Source
FHA Loan
Wikipedia, April 1, 2008
http://en.wikipedia.org/wiki/FHA_loan
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