What is a Federal Housing Administration (FHA) Loan

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Federal Housing Administration (FHA) Loans

Federal Housing Administration (FHA) loans are “guaranteed” by the government, which means the lender has less risk when giving you the loan. For this reason, you can get an FHA loan with a lower down payment than with a conventional loan. The minimum down payment for a FHA loan is 3.5% of the home’s appraised value.
Rather than Private Mortgage Insurance (PMI) as with a conventional loan, you will have a mortgage insurance premium. This is one of its least desirable features. Typically, you will pay 1.5 percent of loan amount at closing and 0.5 annually thereafter. But you may qualify for a refund if you sell your home.
Among its benefits, an FHA loan is easier to qualify for as far as lower credit scores, income ratios, and size of down payment. However, rates are established by the lender, not the government, so you will still need to shop around for your FHA loan to get the best deal. FHA loans are also “assumable,” if the buyer meets credit criteria, which may make your home easier to sell if you need or want to sell it in the future.
You can get your down payment from a variety of sources, such as: personal funds or savings, loans or gifts from family members, charitable and governmental grants (community block grants for example). Down payments cannot come directly or indirectly from anyone who benefits from the sale – i.e. the seller.

Three types of FHA Loans:

FHA 203(B) fixed rate mortgage (can be 15-year or 30-year)
FHA 251 Adjustable Rate Mortgage
FHA 2-1 Buy-down loans

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