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FHA Home Mortgage Loans: Tips for Refinance or Purchase

By: Becky Connor

The Federal Housing Administration (FHA) was created by Congress in 1934. FHA guarantees loans in order to assist lower and middle income consumers as well as the first time home owner. These government home loans generally have a low down payment requirement and less stringent requirements for income and credit scores. There is also the possibility for stated income loans. FHA home mortgages were developed to support people who otherwise have difficulty qualifying for a loan. Individual lenders set interest rates and repayment periods, however, not the government. FHA simply insures these loans to lower the risk to the lender. Since FHA protects lenders against losses, the lenders are generally willing to create loans with easier qualifications.

Down payment on FHA home mortgages are normally 3 percent of the sale price and the money can be a gift from an employer, family member or a charitable organization. The FHA home loan debt to income ratio allows for 31 percent of income toward housing costs. If you are planning on buying a house that needs repair, FHA also has a program that allows the borrower to finance up to an additional $35,000 for improvements before moving in to the residence.

The three percent down payment is about to change on FHA loans as well. Zero down home loans may be available through FHA by October. FHA borrowers will have to pay more upfront and in their monthly mortgage payments, but the program will allow those with no way to raise the money for a down payment to get into their first home.

FHA loans also give consumers the option of refinancing existing mortgages. With the new 95 percent cash-out loan limit, refinancing with FHA has gotten more attractive. Henry Savage president pf PMC Mortgage notes, “With the new 95 percent cash-out loan limit, I predict a substantial increase in FHA refinance activity in 2006 and 2007.” Unlike conventional loans, lenders do not increase the rate or charge extra fees for an FHA cash-out refinance at 95 percent. The 30-year fixed rate is also very desirable compared to adjustable home equity lines of credit. You should look at all your options before choosing an FHA loan when purchasing a home or refinancing with a competent loan officer. However, you might find that is the perfect option for your lending needs.

Becky is a published writer who has posted many home mortgage articles online. She recommends the following home loan resources: FHA Home Mortgage Loans, 100% Home Mortgage Financing and FHA Mortgage Refinance.  source: Refinance Loan Tips

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