FHA Mortgage - Federal Housing Administration Mortgage

FHA insured mortgage loans, which are designed to help low-income and first-time homebuyers secure mortgages, require only a 3% down payment, and they permit borrowers to carry more debt than private mortgage insurers typically allow. The FHA increased its insurance limits for single-family mortgages by 9%, to $144,336 in low-cost areas and $261,609 in high-cost areas. The limits for FHA-insured two-unit dwellings were raised to $184,752 in low-cost areas and $334,863 in high-cost areas. The limits for three-unit dwellings were raised to $223,296 in low-cost areas and $404,724 in high-cost areas, and the limits for four-unit dwellings were raised to $277,512 in low-cost areas and $502,990 in high-cost areas. The increases are part of the Department of Housing and Urban Development's annual adjustments to account for rising home prices. The FHA insurance limits are tied to the confirming loan limits of Freddie Mac and Fannie Mae.

FHA loans are for borrowers who seek loans no larger than the loan size limits set by the FHA program, and either can’t meet a 3% down payment requirement, have poor credit, or both. FHA loan size limits vary by county, are reset every year, and can be found at https:// entp. hud. gov/ idapp/ html/ hicostlook. cfm. Second mortgages are prohibited with the FHA loan. Most FHA borrowers make down payments of less than 3 percent. FHA allows you to buy a home with 1% down. Private mortgage insurers require 5 percent down on most loans, and only allow 3 percent down on special programs. FHA is also liberal in allowing gifts to be used for paying settlement costs. FHA borrowers also usually have weaker credit than private insurers accept. FHA allows higher ratios of expense to income, is more tolerant of existing debt, and will allow the income of co-borrowers who don’t live in the house to count fully in measuring income adequacy. It is also quite forgiving about bad credit. For example, a borrower need be out of a Chapter 7 bankruptcy for only 2 years, and out of a Chapter 13 bankruptcy for only 1 year. But there is a third group of FHA borrowers that shouldn’t exist. It is comprised of borrowers who meet the requirements of a conventional loan but are steered to an FHA. This happens because loan officers who specialize in FHAs don’t like to lose a customer. FHA loans are generally available in the market at about the same interest rate and points as conventional loans with the same term. There may be a difference

Normally, changes in the conforming limits and the FHA ceiling for high-cost areas -- which is pegged at 87% of the conforming limits -- match the index's increase. However, allegedly intentional miscalculations of last year's limits by Fannie and Freddie triggered the imposition of a surcharge on their limits this year that is intended to compensate for 2004 increases, which OFHEO called excessive.

To help the Federal Housing Administration regain market share, the Department of Housing and Urban Development will let some lenders get FHA insurance on mortgages without up-front loan file reviews by the agency.