FHA Mortgage Loan

FHA mortgage loans are home loans that are insured by the U.S. Government’s Federal Housing Administration (FHA). An FHA mortgage is an important option to consider when looking for the home of your dreams, especially for first-time homebuyers or buyers with low to moderate incomes.

The Federal Housing Administration (FHA) was formed in 1934 to spur greater homeownership numbers in the U.S. and to facilitate home financing, improve housing standards and increase employment in the home-construction industry. FHA mortgage loans accomplish this through:

• Low down payment requirements
• Flexible income and credit requirements
• Fixed- and adjustable-rate loan options
• Offering loans for 1- to 4-unit properties and condos in some cases
• Allowing gift funds from a relative or employer*to be used for down payment
• Allowing home sellers to contribute up to 6% of applicant’s closing costs
  *Subject to underwriting review and approval.

According to FHA guidelines, the FHA generally will not insure more than one mortgage for any borrower, noting an exception for transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired. There are other exceptions as well. One of those exceptions is provided for relocations.

If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another FHA mortgage and is not required to sell the existing FHA-financed property. Other exceptions may be approved when a family has increased in size or for a borrower who is vacating a jointly-owned property. Exceptions are processed on a case-by-case basis.

If you put down 10% or more as a down payment, you can wait for the FHA mortgage insurance to fall off your loan, which happens after 11 years. If you put down less than 10%, the only way to get rid of the monthly mortgage insurance payments is to refinance into either a Conventional or VA loan, if you qualify for either.

It depends! For people with better or more established credit profiles and low levels of debt, it may be advantageous to choose a Conventional loan over an FHA loan, even if the interest rate is the same or similar, due to other advantages associated with Conventional loans. For those who may not have as much established credit, a lower credit score or who may have slightly higher levels of debt, an FHA loan might be the cheaper option over the life of the mortgage loan, or it may be an entryway into a home loan for some who may not qualify for Conventional. As always, though, a Fairway mortgage loan officer will be able to go over your specific situation more closely in a phone consultation or online, and then advise which option would be advantageous for you.

An FHA 203(k) loan is a type of FHA loan that is specifically for bundling the costs of necessary renovations or home improvements into the mortgage loan at the time of purchase or refinancing. It is a great option for people who have found a home that needs a little love before it is 100% move-in ready. Or, some borrowers choose to take out an FHA203(k) refinance loan later, when certain updates to the home become necessary.

At Fairway we offer FHA Limited 203(k) loans, which can provide up to $35,000 (including a contingency reserve) to help make non-structural home improvements or renovations, such as updating a kitchen or bathroom, replacing flooring, purchasing new appliances or repairing the roof. We also offer an FHA Standard203(k) for homes that may need more than $35,000 in renovations, or for homes where the necessary renovations may be more structural in nature.

• Adjustable-rate mortgage loans are available through an FHA mortgage loan. An adjustable-rate mortgage loan, or ARM, is a home loan that starts with a lower fixed interest “teaser” rate for a period of five to 10 years, followed by periodic rate adjustments based on current market mortgage rates. Adjustable-rate mortgage loans may be the right mortgage loan option for borrowers interested in a lower introductory interest rate and greater flexibility if the borrower thinks they may only stay in the home they are buying for a few years, instead of for the entire life of the mortgage loan.
• Fixed-rate mortgage loans are also available through an FHA mortgage. The stability and predictability of a fixed-rate mortgage loan are the biggest advantages associated with these mortgage loans. You will know exactly how much interest you will pay over the life of the mortgage loan even before you sign all your documents. The total monthly payment of principal and interest remains fixed over the life of the loan, and in the early years in the life of your mortgage loan, most of your payments will go toward that interest. As you pay off more and more of your fixed-rate mortgage loan over the years, the amount paid monthly toward loan principal will increase, and the amount paid monthly toward interest will decrease.
• Streamline refinance refers to the refinance of an existing FHA mortgage, requiring limited borrower credit documentation and underwriting, because all that has previously been initially taken care of during the original FHA home purchase transaction. Basic requirements of a streamline refinance include (1) the mortgage to be refinanced must already be FHA insured and must be current, (2) cash in excess of $500 cannot be taken out as a result of the streamline refinance transaction and (3) the refinance must result in a net tangible benefit to the borrower.