Dallas Mortage News

What Is an FHA Mortgage Loan?

FHA Mortgage Loan

An FHA mortgage loan is a type of home loan that is backed by the U.S. Government’s Federal Housing Administration (FHA). This program plays a crucial role in helping individuals achieve their homeownership goals, particularly first-time homebuyers or those with low to moderate incomes. If you are searching for the home of your dreams, an FHA mortgage loan is an important option to consider. It offers valuable benefits and support to make homeownership more accessible and attainable.

FHA Loan Highlights

The Federal Housing Administration (FHA) was established in 1934 with the aim of promoting homeownership, facilitating home financing, improving housing standards, and stimulating employment in the home-construction industry. FHA mortgage loans provide numerous advantages, including:

Low down payment requirements: FHA loans offer the benefit of requiring a lower down payment compared to conventional loans, making homeownership more accessible for many individuals.
Flexible income and credit requirements: FHA loans accommodate a broader range of income levels and credit profiles, making them a viable option for borrowers who may not meet the strict criteria of conventional loans.
Fixed- and adjustable-rate loan options: FHA loans provide the flexibility to choose between fixed-rate and adjustable-rate options, allowing borrowers to select the loan structure that best suits their needs.
Eligibility for various property types: FHA loans extend financing opportunities for a range of property types, including 1- to 4-unit properties and, in some cases, condos, providing versatility in the home selection process.
Gift funds for down payment: FHA loans allow borrowers to use gift funds from a relative or employer towards their down payment, subject to underwriting review and approval, which can be helpful for those seeking additional financial support.
Seller contributions towards closing costs: FHA loans permit home sellers to contribute up to 6% of the applicant’s closing costs, reducing the financial burden on the buyer.

FHA Mortgage FAQs

Can you have a second mortgage with an FHA loan?

According to FHA guidelines, generally, the FHA does not insure more than one mortgage for any borrower. However, there are exceptions to this rule, such as when an existing FHA mortgage is being paid off and replaced with another FHA mortgage. Additionally, exceptions are made for specific situations like relocations.

In the case of relocation, if a borrower is moving to a different area that is not within a reasonable commuting distance from their current principal residence, they may be eligible to obtain another FHA mortgage without having to sell their existing FHA-financed property. Other exceptions may be considered for borrowers whose family has increased in size or for those vacating a jointly-owned property. These exceptions are evaluated on a case-by-case basis.

How can I eliminate my FHA mortgage insurance?

If you made a down payment of 10% or more on your FHA loan, you can simply wait for the FHA mortgage insurance to automatically terminate after 11 years. However, if your down payment was less than 10%, there are steps you can take to remove the monthly mortgage insurance payments.

Are FHA mortgage rates lower than conventional rates?

The comparison between FHA and conventional mortgage rates is not solely determined by the interest rate itself. It depends on various factors, including your credit profile, debt levels, and individual circumstances. Generally, for borrowers with better credit and lower debt levels, choosing a conventional loan over an FHA loan may be advantageous, even if the interest rates are similar. This is because conventional loans offer additional advantages that can potentially save you money over the life of the loan.

On the other hand, if you have a lower credit score, limited credit history, or slightly higher debt levels, an FHA loan might be a more affordable option in terms of the total cost of the mortgage loan. FHA loans are designed to provide opportunities for individuals who may not qualify for conventional loans, serving as a viable entryway into homeownership.

To determine which option would be most beneficial for you, it is recommended to consult with a knowledgeable Fairway mortgage loan officer. They will carefully assess your specific financial situation during a phone consultation or online discussion and provide personalized advice tailored to your needs. They can analyze the potential advantages and cost-saving opportunities associated with both FHA and conventional loans, helping you make an informed decision.

At Fairway, we strive to ensure that our clients receive expert guidance and support throughout the mortgage loan process, enabling them to choose the option that best suits their unique circumstances.

What is an FHA 203(k) loan?

An FHA 203(k) loan is a specialized type of FHA loan designed to assist borrowers in financing the costs of necessary renovations or home improvements. It offers the convenience of combining these expenses into the mortgage loan at the time of purchase or refinancing. This loan option is particularly beneficial for individuals who have found a home that requires some attention before it is fully move-in ready.

Additionally, some borrowers choose to utilize an FHA 203(k) refinance loan at a later stage when specific updates or renovations become necessary.

At Fairway, we provide FHA Limited 203(k) loans, which offer borrowers up to $35,000 (including a contingency reserve) to address non-structural home improvements or renovations. These enhancements can include updating a kitchen or bathroom, replacing flooring, purchasing new appliances, or repairing the roof. We also offer an FHA Standard 203(k) loan option for homes requiring more extensive renovations exceeding $35,000 or for properties where the necessary improvements are of a more structural nature.

Our team at Fairway is dedicated to helping borrowers navigate the FHA 203(k) loan process. We provide expert guidance and support, ensuring that you understand the options available to you and can make informed decisions regarding your home improvement financing needs. Whether it’s a limited renovation or a more comprehensive project, we are here to assist you in achieving your homeownership and renovation goals.

Adjustable-rate loans, Fixed-rate loans and Streamline Refinance

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.