Federal Housing Administration

Department of Housing and Urban Development

The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934. The purpose of this act was to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market. FHA was consolidated into the newly established Department of Housing and Urban Development (HUD) in 1965.

FHA was created by the Federal Government to provide affordable housing financing for qualified buyers. FHA insures the loan, which limits the lender's risk. Among the home loan options available that require a minimal down payment, FHA loans are the most popular. To qualify for an FHA loan you must meet the following requirements:

•   Steady employment with at least two years with the same employer
•   Consistent or increasing income over the past two years
•   Credit report in good standing with no more than two thirty day late payments in the last two years
•   Any bankruptcy must be at least two years old with good credit for those two years
•   Any foreclosure must be at least three years old and good credit for those three years

FHA Mortgages do not have PMI Insurance. However, they do have their own mortgage insurance program which is charged to the buyer at 0.5% per year of the total loan amount. For example, if your mortgage amount is $210,000 for thirty years, your monthly mortgage insurance will be about $87 per month. You will also pay an upfront mortgage insurance of $3,150 which will be included in the closing costs. This premium can be financed in the mortgage amount.

FHA lending limits vary according to states. For example, on July 24, 2006, the maximum single family mortgage amount for Greenville, SC is $206,000. If the value of the home you are considering exceeds this limit you probably need to consider conventional financing.

Types of FHA Mortgages

Adjustable Rate Mortgage (ARM): The FHA ARM is a HUD mortgage specifically designed for low and moderate-income families. Rates and conditions vary on this program so you need to consult with your mortgage processor.

Fixed Rate Mortgage: The most popular FHA loan is the 203(b). This fixed rate loan works well for first time home buyers because it allows individuals to finance up to 97% of their home loan. The 203(b) home loan is also the only loan in which 100% of the closing costs can be a gift from a relative, non-profit, or government agency.

Energy Efficient Mortgages: Energy efficient mortgages can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost involved in adding energy efficient features to the home and the estimate of the energy savings must be determined by a home energy consultant. Up to $200 of the cost of this inspection can be included in the mortgage. The cost of the improvements that may be eligible for financing is either 5% of the property's value (not to exceed $8,000) or $4,000, whichever is greater.

Growing Equity Mortgages: This plan is available for those buyers who anticipate that their earnings will increase appreciably and intend to use the mortgaged property as their primary residence. This plan provides for monthly payments to be increased by a fixed percentage during each year of the loan.

FHA 203(h) "Disaster Victims": This program is designed to assist those affected by national disasters. It does not require a down payment and allows the borrower to finance 100% of the purchase price. For this loan you must provide documentation to confirm that the property was in the affected area before the disaster. You also must provide documentation regarding the destruction of your residence. This documentation can be in the form of an Insurance Report, an Inspection Report by an independent fee inspector or government agency, or a Letter from FEMA.

FHA 203(k) "rehab loan": An FHA home rehabilitation loan allows you to borrow money above the purchase price for home improvements.

For more detailed information about these loans consult your mortgage lender or visit the FHA website at http://www.fha.gov .