October 6, 2011
First time home buyers interested in FHA home loan options often have plenty of questions about the basics of FHA mortgages. What does it take to qualify for an FHA home loan? How much down payment do I need? Can I get a no-money down FHA loan?
Some basics of FHA loans include the following:
A typical FHA mortgage for a single-family property is guaranteed under a program called the FHA 203(b). Some borrowers get a little confused (at first) by the complete name of this FHA program, which is called FHA 203(b) Mortgage Insurance.
The FHA does not provide loan money, it insures the loan for a borrower applying for the FHA mortgage at a participating lender. The government cannot force a bank or financial institution to participate in the FHA loan program, nor do all banks qualify for participation. Those who do qualify and choose to participate are the sources of all FHA home loan funds.
The purpose of the FHA 203(b) Mortgage Insurance program is to help a person to purchase or refinance a principal residence. This type of FHA home loan is not for investors, those who want to purchase property to convert to commercial purposes. It is designed for properties with 75% of the floor space used for residences. A building purchased with an FHA insured 203(b) mortgage can have some commercial uses, but all such use must be “subordinate to the residential nature” of the property.
All FHA borrowers must meet “standard FHA credit qualifications” including a credit check, employment and income verification. According to the FHA loan official site, “The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.”
Contrary to what some may believe, single-unit properties are not the only types which can be purchased with an FHA insured 203(b) mortgage. Qualified borrowers can apply for an FHA loan for homes or properties with up to four units. The borrower must live in one unit as his or her primary residence.
Borrowers may pre-qualify for FHA loan amounts by filling out pre-qualification paperwork at a participating lender.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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