FHA mortgage is loan provided by Federal Housing Administration. FHA does not gives loan but insures it for the lender. In case of borrowers default, the lending person can look for recourse from the FHA. This helps in lowering the risks and makes lending issue an easy process.
At present, Federal Housing Administration does not guarantees or make loans. It now insures loans. The insurance minimizes or removes the default risk that the lenders face when the borrowers put down less than twenty percent. One of the advantage of FHA insured mortgage is that the rate of interest is very low. For single family houses, the down payment is as low as 3% and for the higher priced house the percentage goes to 10-15%. FHA also assists the house buyers to refinance and offers them with mortgage insurance options.
Also it does not let the money lenders to charge over 1% of origination fees and come with no prepayment penalties, that implies if you pay back your loan value before time you will not be liable to any penalty. Unlike other mortgages who ask you to pay points that usually sum up to 1% of the total value of the home.
In order to qualify for loans you will have to meet particular requirements like:
- A good credit history
- Having sufficient money for down payment, which can be as low as 3 percent;
- Total housing costs must not be more than 29 percent of your gross monthly income.
So if your annual household income is $60,000 , your housing cost including interest, principal amount, insurance and property tax must not exceed $17,400 or $1450 each month.
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