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FHA Loans : The Federal Housing Administration (FHA) Loans

The Federal Housing Administration (FHA) offers programs that make it possible for low and moderate income families to realize their dreams of purchasing a home. The FHA single family mortgage insurance program helps low and moderate income families qualify for home loans in a number of ways. These families would normally not qualify for conventional loans but the FHA program helps to lower some of the costs of mortgage loans. The FHA also provides protection for the mortgage lender against the homeowners defaulting on the loan. This protection makes lenders more inclined to be willing to issue a mortgage loan to a family that would otherwise not meet their loan criteria.

Section 203(b) is the most important part of the FHA’s loan program. This section has a number of features that make purchasing a home a reality for many who would otherwise not qualify for a conventional home mortgage. These features include low down payment requirements, incorporation of closing cost into the loan, limitations placed on fees and limitations placed on mortgage values. The combination of these features can make obtaining a loan through the FHA’s loan program possible for low and moderate income families.

Low down payment requirements is one of the appealing features under Section 203(b) of the FHA’s loan program. FHA’s loan program allows homeowners to finance up to 97% of the property of the home. This means that the homeowners would be required to put up as little as 3% of the value of the home as a down payment. Many conventional loan terms require the borrower to put up a down payment of at least 10% of the property value. For many low and moderate income families coming up with this down payment is not possible. However, under the FHA’s loan program where as little as 3% would be necessary, these families are able to find that their dream of homeownership is no longer so far fetched.

Allowing borrowers to finance their closing costs is another way that the FHA loan program makes obtaining a mortgage loan possible for low and moderate income families. Closing costs are typically equal to approximately 2-3% of the value of the home. Again, many families do not have this much in cash and are often unable to obtain a home mortgage because of this. By incorporating the closing costs into the loan amount, buyers do not have to have these assets available at the time that they purchase their home. The closing costs instead get paid as a part of their regular mortgage payment.

The FHA loan program also imposes limits on the fees that lenders can assess to the borrowers. These fees include origination fees and administrative fees. The FHA places a limit of 1% of the property value on the amount of fees that can be charged.

Another feature of Section 203(b) is a limitation on the dollar value of the mortgage loan amount. The purpose of the FHA loan program is to help low and moderate income families so these limits are established to ensure that borrowers are not taking advantage of the program.