Understanding FHA

A few months ago, I wrote my first article on FHA programs with the intent to provide more in depth understanding of the various FHA programs. With the Governments re-emphasis on FHA as a key vehicle for dealing with the housing crisis, together with the debacle facing Fannie and Freddie, now is a good time to review FHA in more detail.

Let’s start with some basics. First, the FHA insures loans that approved Lenders make, it does not purchase them as Fannie and Freddie do. If a FHA insured home goes into bankruptcy, FHA pays off the mortgage to the Lender, takes ownership of the home, and then proceeds to sell it (a HUD home.) For a Realtor to sell a HUD home, you need to be approved by HUD. We will have a subsequent article on becoming HUD approved.

To mitigate risk and provide income to offset foreclosures and defray their expenses, FHA charges the borrower insurance premiums, both an up front and a monthly premium. The up front premium can be included in the mortgage amount. Earlier this year, FHA introduced risk based pricing to the borrower for their insurance, based upon the amount of the down payment amount.

FHA loans are available for purchasing or refinancing a 1 to 4 unit owner occupied home. There a number of FHA programs that focus on unique circumstances, from your “vanilla” FHA loan to Condos to REO’s to Reverse Mortgages to Rehab to Veteran loans and more.

Subsequent articles will review in more detail these various programs. As I have said before, in today’s environment, FHA is you primary source of mortgage programs. The more information that you have, the better positioned you will be to take advantage of opportunities when they present themselves.

One final point, NOT all Lenders service all types of FHA loan programs. You need to have two or three Lenders or Mortgage professionals that you regularly refer business.

As always, if I can answer any question or be of assistance to you, let me know.