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FHA Loans Mortgage Insurance to HUD

Vienna, VA - refers to Federal Housing Administration Mortgage Loans (FHA) Loans as, “A government-backed mortgage, insured by the Federal Housing Administration, or FHA. Popular with first-time homebuyers, FHA home loans require lower minimum credit scores and down payments than many conventional loans.”

FHA Loans may have popularity due to the safety net it provides to the lender, but if the borrower defaults on the loan, there are consequences such as foreclosure. Sellers of a property may be weary of purchasers who use these loans because FHA appraisers are more strict than conventional appraisers. FHA loans cap debt-to-income ratio at 43 percent, with a credit score of 580 and sometimes even lower.

On Conventional loans, the debt-to-income ratio is 50%, with a credit score of 620 and higher.

Borrowers on FHA loans are charge an upfront mortgage insurance premium (MIP) regardless of the amount of down payment, which is 1.75% of the loan amount. This MIP is paid directly to HUD. Also, the borrowers pay a monthly MIP fee.

If a buyer defaults on a loan, the Federal government is guaranteed to pay the lender back. By insuring the lender against loss, the FHA hopes to encourage homeownership among people who might otherwise not be able to afford it. FHA-backed loans usually have more lenient requirements than conventional loans—lower credit scores are required and your down payment can be as low as 3.5 percent according to Choncé Maddox, writer for Money Under 30. |

More information and additional reports are expected as this is a continued piece.

By Alex Fernandez