A Guide to FHA Mortgages

An FHA mortgage is a loan that is insured by the federal government and managed by the Federal Housing Administration which is a part of the Housing and Urban Development (HUD).  An FHA loan is money lent from a lender just like any other loan.  It is simply insured by the federal government against losses resulting from borrower default.

With anything there are advantages and disadvantages to obtaining an FHA mortgage.

Advantages

What makes an FHA mortgage loan most attractive are easier qualifications and smaller down payments than with traditional mortgage loans. 

It is easier to get approved for an FHA loan than other conventional loans.  Those with less than perfect credit can many times qualify for an FHA loan even when they cannot qualify for a conventional loan.

It is possible to get approved for an FHA loan with only a 3.5% down payment as opposed to a much higher down payment with conventional loans.  Once caveat is that if you have a credit score of less than 580 you may be required to make a down payment as high as 10%.

It is important to remember that when looking to get qualified for an FHA mortgage loan the lender must be approved by the Federal Housing Administration.

Disadvantages

FHA mortgages will require you to pay an upfront mortgage insurance premium.  This lump sum payment will be added to your closing costs.  The amount of this insurance premium is usually the equivalent to 2.25% of the total mortgage amount.

You will also be required to pay for monthly mortgage insurance.  This will increase the size of your monthly mortgage payments. 

In most instances FHA mortgages have a higher interest rate than conventional mortgage loans.  This, too, will increase your monthly mortgage payments.

Conclusion

It is usually first time homebuyers that benefit the most from FHA mortgage loans.  Be sure when looking into a mortgage loan you take an FHA loan into consideration to decide if it is the way to go for you.