FHA Mortgage Insurance - FHA Home Loans

Discover how you can have the seller pay this for you upfront, saving thousands of dollars.

FHA mortgage insurance programs help all buyers, but seems to be aimed at the low to moderate income families. What it does is lower some of the costs of their mortgage loans.

What this insurance does for you is that it encourages the mortgage companies to make loans to those they may not otherwise do. It sort of gives a warm fuzzy feeling to the lender because it serves as a loan guarantee to them that you will not default on your loan. Its like have a gold seal guarantee stamped on your loan.

Conventional loans done in the conforming market have different underwriting requirements than FHA home loans. Your goal should be to get yourself into the conforming market so you can get the best of all worlds.

Let me tell you another little story. Little did I realize when I was buying my first home, that I was to become an FHA buyer. I heard the words FHA but it meant little to me. I wanted to buy a house and really did not care how I got it.

So, when I bought my first home, in my case the seller paid the FHA mortgage insurance for me. On a sale price of $19,000 the 1.5% FHA mortgage insurance was only $285. I was so blinded by the fact I was buying a home I never gave it any thought.You though, you must be aware of these costs.

With the average home in many areas at $150,000 and above this translates into quite a sum of money. This FHA mortgage insurance premium must be paid at the closing by any of 3 parties.

1. The buyer can pay it

2. The seller can pay it

3. The lender can give a credit and pay it for you

So make sure you have a loan officer who is familiar with these loans. Also find a real estate agent who works well with first time buyers. That way they will work with the seller to help you.

This insurance has become a centerpiece of the FHA home loan programs. It helped save homeowners from default in the 1930's. Also, it helped returning veterans in the 1940's and 1950's by helping them buy homes in the suburbs. Really it has shaped the mortgage finance system of today.

FHA mortgage insurance (pmi) is still an important tool through which the Federal Government expands home ownership in many communities today.

Almost every person that gets this insurance on their home loan is a first time home buyer.

FHA Home Loans Has Low Down Payment Requirements

If you look at the conventional loan products, the down payment requirements start at 5%. There are some that have 3% and even offer zero down but you really pay for this in the interest rate.

Have you ever heard the saying “there’s no free lunch in this world”? It’s true. There’s not.

No matter if you use the these loan products or go conventional with a zero money down, someone’s going to pay for the risks involved.

Remember that the lenders have to be induced to do loans for first time home buyers so we have the FHA mortgage insurance to help with that. In a conventional loan, with no money down or even 3% down they pay a much higher interest rate.

The insurance allows buyers to borrow up to 96.5% of the value of the home purchase, in some cases even 100%.

FHA PMI and Closing Costs

On conventional loans, the borrower must pay the closing costs at the time of purchase. This often equals 2-3 percent of the price of the home. The FHA mortgage insurance program allows up to 6% to be used towards the buyers closing costs, pre-paids and escrows. This is HUGE!

Little did I realize when buying my first home that’s what happened. Now I’m able to help others learn how this is done and even teach them how to get this included in their overall mortgage. Using the sellers money, your money or a combination thereof this can make it possible for you to buy a house with little or no money down.

Again, the FHA mortgage insurance (pmi) that’s paid up front at closing helps you get this done. Then the remaining premium is included in your monthly payment. One thing that I believe is a down side to this loan product is you never get to stop paying this FHA mortgage insurance. This is collected right down to your last payment.

This is not the case on conforming loans when mortgage insurance stops getting collected when you pay down the balance below 80% of the value of the home.

Some Fees are Limited on FHA Home Loans

FHA rules impose limits on some of the fees that mortgage companies can charge which also helps first time home buyers. For example, the loan origination fee is limited to 1% of the loan amount. Processing fees cannot be charged either. Some lenders have processing fees of $500 or more.

FHA Home Loans Limit the Loan Amount

Just to make sure this program is not abused and restricted to first time home buyers with low to moderate income, FHA sets limits on the dollar value of the mortgage loan.

Each state and county has its own limit and must be researched before trying to get this kind of a loan product.

If you’re working with a good loan officer he’ll know what’s available to you in your area. Trust me, I’ve never seen the limits where they cannot meet your needs.

Keep in mind that FHA mortgage insurance is designed to help you, the first time home buyer, become a home owner.

Would you like to understand the different loan options? First time home buyer programs has an excellent explanation of these options.

There is a true zero down home loan. Learn what that program is by reading zero down home loans page.

Are you still curious about the FHA product? Do you have more questions? FHA loan information is a cool question and answer place to find answers your looking for or ask your own questions.

Do you have questions not related to FHA home loans? Have a question is an awesome place to ask them. Go ahead...pick my brain!

Stay up-to-date with all that is new at First Time Home Buyer Solutions. Subscribe to the RSS feed at the bottom of the navigation bar over on the left.

Leave FHA Mortgage Insurance and return to Best FHA Home Loans main page.

Return to First Time Home Buyer Solutions home page.

Would You Like Your Own Website?
Click Here for FREE Details.

© 2005-2011 All Rights Reserved
Powered By SBI!