FHA loans usually offer liberal qualifying criteria and require smaller down payments. Both fixed and adjustable loans are available. These loans are insured by the Federal Housing Administration and you must meet certain FHA guidelines. These loans are offered directly to the home buyer via companies such as Republic Mortgage Home Loans. You could call the FHA loan the original first-time homebuyer program.

FHA is very popular route for the first time homebuyer to take. It is not a program reserved only for first time homebuyers. You can buy your third or fourth home with an FHA loan. The only stipulation is that you may only have one FHA loan at a time.

The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal was to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market.

Thanks to the insurance products FHA helped to pioneer, such as the long term amortizing loan, the nation’s home ownership rate has soared to an all time high of 66 percent as of the third quarter of 1997; well on the way towards the goal of 67.5% by the year 2000.

2009 Washington County FHA Loan Limits.

Kitsap $307,050

Pierce $506,000

King $506,000

Mason $271,050

Purchase a Home with an FHA Mortgage

Looking to buy a home? An FHA mortgage makes buying a home easier and less expensive than other types of home loan programs. Even people who are self-employed or who have less than perfect credit may find that they qualify under the FHA’s loan program. Because the Federal Housing Administration insures your mortgage, qualification guidelines may be more liberal than with other types of mortgages. In fact, the FHA guidelines include:

· Down payments as low as 3.5% of purchase price.

· Easier credit and income guidelines.

· Easier job requirement guidelines.

· Minimal FHA-regulated closing costs

What is an FHA loan?

It’s a bit of a misnomer, since Federal Housing Administration (FHA) loans are not loans at all. What they do is insure loans so that lenders can offer mortgage assistance to people who:

· Have fair credit

· Have a low down payment (must have at least 3.5%)

Essentially, the federal government insures loans for FHA-approved lenders so that lender reduce their risk of loss if they lender to borrowers who could default on their mortgage payments. The FHA program has been in place since the 1930’s to help stimulate the housing market by making loans accessible and affordable. Traditionally, FHA loans have helped military families who return from war, the elderly, handicapped, or lower-income families, but really, anyone can get an FHA loan – they are not just for first-time homebuyers.

What are the advantages of an FHA loan?

An FHA loan is the easiest type of real estate mortgage loan to qualify for because it requires a low down payment and you can have less-than-perfect credit. Also, because FHA insures your mortgage, lenders are more willing to provide loans. Another advantage of an FHA loan is its assumable, which means if you want to sell your home; the buyer can “assume” the loan you have. FHA loans can be used for a home purchase or a refinance.

What do I need to qualify for an FHA loan?

· Must have steady employment history or worked for same employer for the last two years.

· Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.

· Must make a minimum down payment of 3.5% on the house and it can be gifted by a family member (conventional financing does not allow gifting.)

· Must have a property appraisal from an FHA-approved appraiser.

What are the disadvantages of an FHA loan?

You knew there had to be a catch and here it is: since an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront – or, it can be financed into the mortgage – and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA approved appraiser.

· Upfront mortgage insurance premium (MIP) – Appropriately names, this is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loans, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled in the mortgage.

· Annual MIP (charged monthly) – Called an annual premium, this is actually a monthly charge that will be figures into your mortgage payment. It is based on a borrower’s loan-to-value (LTV) ratio and length of loan. There are two different Annual MIP values: 0.50% and 0.55%. If the LTV is less than or equal to 95 percent, a borrower will pay 0.50%. For LTVs above 95 percent, annual premiums will be 0.55%. Example (for LTV less than 95%): $300,000 loan x 0.5 = $1,500. Then, divide $1,500 by 12 months = $125. Your monthly premium is $125 per month. In most cases, this cost will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property - - whichever is longer.

· Property needs to meet certain standards – Also, an FHA loan requires that a property meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).

Important note: Prior to October 1, 2008, premiums were figures using a risk-based calculation, taking into account a borrower’s credit score and loan-to-value ratio. However, on October 1, 2008, a one-year moratorium was instituted on this method by the Housing and Economic Recovery Act of 2008. Keep current on the premium costs for FHA loans by visiting the U.S. Department of Housing and Urban Development (HUD).

How large of an FHA loan can I get?

While the FHA does not have income or location restrictions, there are maximum mortgage limits that vary by state and county.

Due to tighter lending standards on conventional loans, FHA loans are becoming increasingly popular. For more information on FHA loans, visit the U.S. Department of Housing and Urban Development (HUD).