FHA Mortgage 101 - Highlights of funding.

Have you heard the term FHA mortgage? Ever wonder what makes this financing different than Conventional? Good, this is your opportunity to learn a few important loan advantages, but let's first begin with the definition of FHA.

FHA stands for Federal Housing Administration and is the largest government insurer of mortgages in the world. They are a part of the United States Department of Housing and Urban Development (HUD), and they provide mortgage insurance on residential homes. FHA was established in 1934 to expand homeownership. The idea was to have more lenient financing guidelines to increase the number of buyers who could qualify for mortgages.

Below are some FHA loan advantages:

Lower down payment requirements

FHA only requires a 3.5% down payment and this money can be received as a gift from a family member or relative. Conventional financing requires a 5% down payment and the funds must come from the buyers assets.

Higher allowable closing cost credits

FHA will allow a buyer to receive up to 6% sellers assist toward their closing costs no restriction on the down payment. Conventional financing requires a 10% down payment to receive a 6% seller's assist.

Allows for a blemished credit history

FHA will lend to less than perfect credit and is more understanding if you have had financial difficulties in the past. Under FHA you can even obtain financing 2 to 3 years after a claimed bankruptcy or foreclosure if you have had no late payments in the last 12 months and have made an effort to rebuild and establish new credit.

Competitive rates and terms

FHA often has the same rate/terms as a Conventional loan. The rate differences varying as little as.125% on a Conventional loan.

While there are many benefits to an FHA mortgage there are a few drawbacks as well. FHA sets geographical loan limits based on the area and the median housing costs in your City as the program is designed to help low to moderate income families afford the opportunity for homeownership. Depending on the sales price of the home you may need to apply for Conventional or Jumbo financing. Also, keep in mind FHA mortgages only apply to your primary residence so you must occupy the property to maintain FHA financing.

Now that you know a few of the key differences between FHA and conventional financing you can Use this information to help you choose the best financing for you.