FHA Insured Mortgages Not Just for First Time Buyers

You might have heard that Federal Housing Authority (FHA ) insured mortgages are some of the best deals around. You may qualify for for an FHA insured loan even if you are not a first time buyer. Read here about what FHA insured mortgages offer, how to qualify and where to find a lender.

What is the FHA?

The FHA is guarantor of mortgage loans and is not a lender. This Federal entity was established in 1934 to help first time buyers get their mortgages funded by eliminating default risk to lenders. Normally, when FHA mortgages go into default, no tax dollars are used to fund the insurance to the lender. The money to cover these losses is drawn from the Mortgage Insurance Premiums (MIP) paid by FHA borrowers. However, when there is a shortfall, the difference is made up by taxpayers. This is happening in 2009 for the first time ever because of the unexpectedly high number of FHA defaults.

FHA Has Low Down Payment

One of the biggest benefits of getting a mortgage insured by the FHA is that you will only need to come up with a three and one half percent down payment. Long gone are the days of zero down loans from conventional lenders who are now requiring anywhere from five to 20 percent down. On the maximum FHA loan amount of $729,750, the difference between a three and a half percent down and a 20 percent down is $120,409, not a trivial amount especially when you are trying to save.

Less Stringent Credit and Income Requirements

Another big benefit of an FHA mortgage is that the qualifying standards are not as stringent as for a conventional loan. The FHA is more interested in steady income and ability to pay than in black marks on your record.

Having a past bankruptcy or foreclosure does not necessarily prevent you from getting an FHA loan, nor does a low credit score. But you do have to demonstrate that you learned from the experience and can manage your debt now.

There are no minimum (or maximum) income levels required for an FHA loan. However, you must be able to demonstrate that you can make your monthly payment including taxes and mortgage insuranc as well as honoring your other financial obligations. The sources of your income can be from regular employment, qualified self-employent, qualified seasonal work, spousal or child support, disability, Social Security, or other insurance or pensions.

Working with a Realtor and Lenders

Whether or not you get an FHA-insured loan, you must work through a Realtor and a lender to find and purchase your home. Before you even begin working with a Realtor, or looking at houses, use a mortgage pre-qualification calculator to get an idea of what loan amount you qualify for. Then use a mortgage payment calculator to get a feel for how much you can comfortably handle each month. You might be happier taking a smaller loan than you qualify if that fits in better with your financial plans.

Once you find a house (or a building with four or fewer units), your Realtor may recommend a lender with whom he or she does frequent business, and that is perfectly normal. Remember though that if you want an FHA loan, you must work with an FHA-approved lender. Keep in mind too, that the FHA does not set interest rates or terms such as points and closing costs for your mortgage. So, it is ultimately your responsibility to shop for the best deal on your loan type and interest rate. You can complete the online form to get mortgage offers from up to four FHA approved lenders. Then use a mortgage comparison calculator to analyze their offers.


Posted By :
Lorraine Watkins is a regular contributor to business and education websites. She is a notary in California specializing in loan documents. She holds an MA in English from California State University, East Bay.

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