What is an FHA Loan

Explanation of FHA loans

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Many homebuyers think that FHA loans are loans that are provided by the Federal Government.  That is wrong.  What the Federal Housing Administration (FHA) does, is provide insurance for loans that are provided by banks and lenders.   This benefits the homebuyer by providing mortgage insurance which encourages financial institutions to make affordable financing available.

Because an FHA mortgage insures the lender against loss, FHA mortgage interest rates are is competitive with the best in your market.  Many lenders would not make loans normally to many people that are eligible for FHA mortgages.   So more buyers are able to qualify for FHA loans because of the easier credit guidelines, looser debt guidelines, and lower down payment requirements.

Federal Housing Administration (FHA) insures mortgages to open opportunities for low to moderate income persons and families to purchase their own home.  FHA is part of the Housing and Urban Development (HUD).

Some of the reasons why you may want to do a FHA loan are:

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Only a 3% down payment is required (as opposed to the many banks usual 5% down). Your credit history doesn’t have to be perfect.  Usually FHA loans are looking for 1 year of good credit history.  Most banks and lenders require 2 years.  Many times there are lower closing costs because FHA limits what closing costs can be charged. The up- front  mortgage insurance can be financed FHA loans allow a higher debt-to-income ratio than normal banks and lenders.  Usually a lender will require that the monthly payment on your home mortgage loan not be more than 28% of your income for that month, and that all of your other debt payments not exceed 36% of your monthly income. With FHA loans, your monthly payment can be up to 29% of your monthly income, and your other debt payments can be up to 41% of your monthly income. In some cases your debt-to-income ratio can be higher, if you can justify the increase and meet FHA guidelines. Non-citizens qualify for minimum down payment home mortgage loans so long as they have a valid social security number.   Get cash out of refinances of up to 85% without a higher rate. There are no pre-payment penalties  Sellers can give up to a 6% contribution towards escrows, closing costs, and pre-paids. FHA home mortgage loans do not require home buyers to have  cash reserves. FHA loans are available to family members co-owning a property even if only one of them resides in that property. 100% of your down payment can come from a gift from immediate family members. If you sell your home, your FHA home mortgage loan is assumable at the rate on your note.  This can be an incentive for potential buyers.

I hope this explains a little bit about FHA mortgages for you.  If you have any questions feel free to pick up the phone and call me on my cell or email me at yesmyrealtor@gmail.com     cell (248) 310-6239


 My thought of the day is:Having a large house or luxury car doesn’t mean you’ve arrived, it simply means you spent more money to get there.  And probably more debt.  The key to living a less stress & full life is to live below your means.  By not living paycheck to paycheck will allow you to take vacations and do things with family and friends.Russ RavaryYour Metro Detroit Real Estate Specialist




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