AARON APPRAISAL Residential & Commercial (General) Real Estate Appraisers

PO Box 18057, Rochester, NY 14614
585-244-5660
www.aaronappraisal.net

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We also service the Canandaigua area.

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FHA Mortgages. How they work & three popular types. 585-244-5660

How an FHA Mortgage Works

The FHA does not lend the money; it simply insures that the total mortgage will be paid to the lender if the buyer defaults. It is always the decision of the private lender (a bank, credit union, or savings and loan) to decide whether or not they will lend the money.

The FHA mortgage program tends to be more forgiving than conventional mortgages in terms of past credit history. A bankruptcy discharged as little as two years ago may not hinder a homebuyer from qualifying for the FHA program.

Typically, FHA mortgages do not require more than a 3-5 percent down payment. Unlike traditional loans, this money may also be a gift to the homebuyer and does not need to be secured as the homebuyer's own money. Often, there are "points" associated with FHA mortgages that are usually worth about 1 percent of the total mortgage value. These points are paid to lenders to help lower the interest rate of the mortgage.

Borrowers will also have to pay PMI (private mortgage insurance) on the mortgage. PMI is used to ensure that the total amount of the mortgage will be paid to the lender if the buyer defaults. Usually, a PMI will not?? be put into effect until 20 percent of the mortgage has been paid.

FHA mortgages have no mortgage value cap. In other words, you can take out a FHA mortgage for $150,000 - $300,000 without any restrictions, other than credit applicability.

Closing costs on FHA (or conventional loans) are usually between 2-3 percent of the total mortgage amount and are the responsibility of the buyer. However, FHA closing costs can be financed into the total amount of the mortgage and paid off accordingly.

THREE POPULAR FHA/HUD MORTGAGES:

Fixed Rate Mortgages

FHA fixed-rate mortgages, or Section 203(b), are the most common and popular type of FHA mortgage. The interest rate does not change with a fixed-rate mortgage. A fixed-rate FHA mortgage insures the lender for the total amount of the mortgage in case the buyer defaults. This type of mortgage requires a smaller down payment than a conventional mortgage would require. The typical down payment for a fixed-rate mortgage is 3 percent of the total amount borrowed. A fixed-rate mortgage can offer a lower interest payment if the mortgage is taken out during a period of low-interest rates. A fixed-rate mortgage can also offer stability; your monthly payments will be the same for the life of the mortgage. Fixed-rate mortgages can be taken out for a period of 10, 15, 20, or 30 years.

FHA Renovation Mortgages

The FHA Renovation Mortgage, or 203(k), allows homeowners to borrow money to extensively renovate their home. As much as 110% of the costs needed to repair and renovate the home can be financed. There are restrictions as to what types of repairs or renovations can take place, and the minimum amount of the 203(k) is $5000.

HECM FHA

Also called a Reverse Mortgage. You may wish to consult a HECM Counselor.