Home Loan News & Advice

FHA Insured Loans have become the most sought-after form of financing during the recent housing and finance correction that started in August of 2007.  Although many lenders have faultered, the FHA insured loans remain the same as they’ve always been.  This has opened the eyes of many Mortgage Professionals and Homeowner’s to the great advantages of an FHA insured loan. 

What is an FHA Insured Loan?
The FHA, or the Federal Housing Administration, was established by the Federal Government’s Department of Housing and Urban Development (HUD) to improve homeownership possibilities for Americans. The FHA mortgage program was established in 1934 to improve existing housing standards and conditions. Prior to 1934, a down payment was typically 50 percent of the home’s price and payments were stretched out between only 1-5 years. Now, you need very little money down and can pay the loan off over a 30 year period.  This allows for many more Americans to be able to afford to buy a home.  You can learn more about FHA loans from the Department of Housing and Urban Development.

FHA Secure
The FHA Secure program is designed to help Homeowner’s who have become delinquent on their mortgage payments.  However, the circumstances for qualification are very specific.  If there aren’t any late payments on the current mortgage, then the applicant should qualify for the regular FHA program.  If there are late payments on the current mortgage, they must have been on time prior to the rate adjusting.  So, you will only qualify for this program if you were timely with your payments until your rate adjusted and caused you to be late.  The intentions here are good, but this won’t apply to most of the people who really need help.  I think it’s a great idea to have a program like this, but I can’t imagine the way it’s currently written that the FHA Secure program will help more than 1% of the people who need it.  See the FHA Secure Fact Sheet for more information.

FHA Refinance
FHA insured loans allow you to borrow up to 95% to get cash-out or consolidate debts.  The financing is accomplished all in one loan, so no need for a second mortgage, sending two payments, and paying a higher rate on the second mortgage like you would with a Conventional Loan.  The LTV limit can be as much as 97% if there is no “cash-out” involved.  Meaning, if you’re only paying off the existing mortgage(s), you could potentially borrow as much as 97% of the home’s value.  The FHA Refinance Loan is probably the most useful tool available for Homeowners who want to make the most of their real estate investment.  Consolidating Credit Card Debts or other Revolving Debts and/or taking cash-out to make improvement to the property are typical uses of the FHA Insured Refinance.

FHA Purchase
FHA insured loans allow you to purchase a home with as little as 3% contributed toward the transaction.  This means you can borrow up to 97% of the purchase price.  You can negotiate as much as 6% in concessions from the Seller as well to help pay for closing costs or a rate-buydown.  There is also a way to get the 3% buyer contribution clause removed.  Send me an email or give me a call for the details on this helpful trick.

Fixed Rates, No PPP, & IRL
Although there are Adjustable Rate Mortgages (ARMs) provided by the FHA, it will very rarely make sense to get an FHA ARM and I have never met a Client who had an existing FHA ARM.  The fixed rates provided by the FHA insured loans are very competitive with any rates available on the market place.  There are no Pre-Payment Penalties involved with any FHA Loan.  In fact, the FHA encourages you to refinance if you can improve your financing terms by offering an Interest Reduction Loan (IRL).   With an IRL, you don’t need to go through the majority of the hassle to refinance if you see an opportunity to lower your rate.  For example, if you closed on an FHA insured loan one year ago at 6% on a 30 year fixed and the current 30 year fixed rates are now 5.5%, you can refinance to the lower rate without needing to have your home appraised or provide any evidence of employment or income.  It actually doesn’t even matter if you no longer are employed!  The FHA is an insurance company, not a lender.  They already have you on the books if you have a loan that’s insured by them, so if you can lower your payment, it reduces their exposure because you should become more likely to pay it back.  Therefore, you don’t need anything to do an IRL other than a timely payment history for your current FHA insured loan.

FHA Loan Limits 
The FHA has set limits that vary from County to County accross the United States. You can find the maximum allowable loan sizes listed by State, then County at the FHA Loan Limits page.

Mortgage Insurance & MIP
FHA loans require you to pay a flat Mortgage Insurance Premium (MIP) fee of 1.5% of the loan amount.  This is the cost of the insurance the FHA is providing.  There will still be monthly mortgage insurance as well for a minimum of 5 years from the first payment date.  This monthly premium is greatly reduced from what a monthly mortgage insurance premium would be for a Coventional Loan.  The MIP fee is refundable in part if you pay the loan off with a non-FHA loan or sell the home. You can search to see if your eligible for this refund at the FHA MIP Refund Search Page.  You can learn what you need to do to get the refund process start by going to the FHA MIP Refund Info Page.  The 1.5% MIP fee is added to the allowable Loan-to-Value (LTV) ratio for the given loan.  For example, if you’re doing an FHA refinance, the maximum LTV is 95%.  However, you can actually borrow 96.5% to cover the cost of the MIP.

This is another good place you can find useful information about FHA Insured Loans.

As always, please contact me if you have additional questions or would like to hear more about anything relating to FHA Insured Loans.