4 Little-Known Facts about FHA Mortgages

FHA mortgages offer prospective buyers a flexible financing option. Unlike many other mortgage programs out there, you have several options and benefits in front of you with an FHA loan. These programs open the door for many people that would not ordinarily qualify for a mortgage. While most people know the general idea behind an FHA mortgage, there are many things that most people do not understand. Here are some little know facts about FHA mortgages. 

1. Insured not Written

One popular misconception about FHA loans is that the FHA itself is making the loan for you. However, this could not be further from the truth. The FHA does not write any loans by itself. The FHA works in conjunction with regular mortgage lenders to offer these programs. The lenders themselves still write the loans. The FHA simply insures the loan for you and the bank. This takes the risk away from the lender and puts it more on the shoulders of the FHA. With this reduced risk, the FHA can then write loans to those that they would not normally work with. If you have questionable credit, you will have a better chance of getting approved because of this FHA loan insurance.

2. Streamlines for FHA Users

An FHA streamline mortgage is designed for existing FHA loan users only. If you do not have an FHA loan already, you cannot refinance with a streamline mortgage. The streamline mortgage does not do any credit or income verification and has a low amount of paperwork. They can do this because they only work with people that they have already worked with in the past. As long as that person has kept the loan up to date, there is no reason for the FHA to deny their new loan application.

3. You Still Pay Insurance

Even though the FHA is insuring the loan for you, you will still have to pay a version of private mortgage insurance. It is not called private mortgage insurance, but it is still there, nevertheless. When you start the loan, part of the closing costs will be a lump sum mortgage premium. Then each and every month, you will pay a small monthly premium payment. You will pay 1.5 to 2.5% in upfront costs and the equivalent of .50 to .55% of the loan amount every month. 

4. Low Down Payments

The down payments with FHA mortgages are lower than you can get from most other loans. If you go out into the private mortgage market, you will usually have to come up with 5 to 10% of the loan balance out of pocket. With an FHA loan, you can get by with as little as 3.5% down. This can save you quite a bit of money out of your own pocket and allow you to keep your cash reserves for future emergencies.  

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