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One of the four major loan products available today is the FHA Home Mortgage. FHA stands for Federal Housing Administration. FHA falls under HUD or Housing and Urban Development. The FHA Home Loan is a government-backed loan product. The government doesn’t actually lend the money; they insure the loan so that if the borrower defaults, they pay off the lender.
One of the many benefits of the FHA loan is the low down payment requirement. Borrowers are only required to put 3.5% of the sales price down. The down payment cannot be a loan, but it can be a gift. FHA allows borrowers to receive a gift from a family member or approved organization for the down payment. The borrower will have to prove that the person providing the gift had the funds to do so.
The monthly mortgage insurance on the FHA home loan is relatively low. The monthly factor used for the 30 year fixed with 3.5% down is .85%. This translates to approximately $85 per month on a $100,000 loan. This is a drop from last year when the monthly factor used was 1.35%. FHA does have an upfront fee of 1.75% but this is rolled into the life of the loan and has little effect on the monthly payment.
Another attractive feature of the FHA loan is the credit flexibility. Borrowers can obtain a FHA home loan three years out of foreclosure and two years removed from bankruptcy. Student loans that are deferred for more than 12 months are not counted. Debt ratios can exceed 50% in some cases. The minimum credit score is 580 with 3.5% down and 500 with 10% down.