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What is a Federal Housing Authority Loan?
The Federal Housing Authority (FHA) was created
by the National Housing Act of 1934 to help revive
and stabilize a housing market devastated by the
Great Depression and the breakdown of the banking
system. It did so by providing federally backed
mortgage insurance, first for construction loans
and then long term mortgages. By meeting credit
history and down payment criteria established
by FHA, a borrower can obtain a 20 year fully
amortizing mortgage loan.
The Department of Housing and Urban Development
(HUD) authorizes the Federal Housing Authority
(FHA) to insure lenders against foreclosure loss
for any residential mortgage that does not exceed
Congressionally set loan amounts.
Eligibility
FHA financing may be used by any qualified
person, whether or not a US citizen. However,
the property must be the borrower's principle
residence; the borrower must live in the home.
The borrower must also have a social security
number.
Advantages of a FHA Loan
- Low down payment
- An assumable mortgage subject to approval
of assumer's credit
- Right to prepay loan without penalty
- Ability to finance closing costs
FHA Programs and Loan Amounts
- FHA maximum loan amounts vary by state and
county.
- Programs available are a 30 Year Fixed, a
15 year Fixed, and a One Year ARM with a 1%
annual cap and a 5% lifetime cap.
- On a 30 year fixed/level payment, the monthly
principal and interest payment remains the same
for the life of the loan.
- The monthly principal and interest payment
on a One year ARM (adjustable rate mortgage)
can fluctuate based on the index (1 year Treasury
Bill), and it has a 1% annual cap and a 5% lifetime
cap.
- GPM (graduated payment mortgage) allows the
borrower to qualify at a lower interest rate
but requires a larger down-payment and has negative
amortization.
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