June 23, 2011
If you’re new to FHA home loans, it’s easy to get confused by the different types of FHA insured mortgages available. There are FHA 203(b) loans, the FHA 203(k) and a host of others.
Some borrowers are ready, after seeing the alphabet soup of different programs a borrower could apply for, to throw up their hands and just ask for “the FHA loan everybody applies for when they want a new home.”
That loan is known as the FHA 203(b), the single-family mortgage insurance program most commonly used all over America. According to the FHA official site, the FHA 203(b) “may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas including manufactured homes on permanent foundations. Typically, lenders offer terms at 15 or 30 years, and interest rates are negotiated between the borrower and lender.”
Borrowers who have looked at conventional mortgages and compare them with the FHA 203(b) learn several things. The 203(b) is easier to qualify for because the FHA backs the loan, giving protection to the lender.
Thanks to this protection, the FHA Frequently Asked Questions section at FHA.gov says, “…you don’t have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.”
FHA loans do not come with zero down payment offers, but the down payment that is required is comparatively lower than many conventional loans. FHA mortgages require a down payment as low as 3.5%, which the FHA allows to come from an employer, family member or charitable organization in the form of a gift if the borrower chooses to accept outside help for the loan.
In spite of what some assume, the FHA does not set interest rates on FHA mortgages, but according to HUD, “FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.”
All FHA loan money comes from participating lenders and the FHA does not provide “direct financing”. But it does require agency approval before a bank can issue an FHA home loan–the FHA and HUD work with lenders to insure quality, regulatory compliance, and fairness in the lending process.
There are plenty of other FHA insured home loans available besides the 203(b), it’s just one of many–but it’s the first thing many borrowers think of when they want to buy a home with an FHA mortgage–even if they don’t know the technical name for the loan.