An FHA mortgage is a federally insured loan offered by FHA qualified lenders. These loans have historically allowed individuals to purchase homes who otherwise would not have been able to. An FHA insured mortgage offers incentives such as a low down payment and lower credit requirements. It is not, however, the new go to opportunity for sub prime lenders and borrowers.
FHA loans still require common sense. To obtain an FHA insured mortgage, the borrower must document his or her income and demonstrate that he or she can pay the loan back. Recent changes have also been implemented to dissuade borrowers from taking out loans they cannot repay.
FHA MINIMUM DOWN PAYMENT
In addition to temporarily eliminating down payment assistance, the FHA minimum down payment has increased from 3% to 3.5%, still less than the 5% minimum down payment required by most non FHA insured programs. In addition to the minimum down payment of 3.5%, the FHA requires an appraisal of the property with full disclosure to the appraiser of any sales concessions, including loan discount points, interest rate buy downs, builder incentives, down payment assistance or monetary gifts, and closing cost assistance.
An FHA insured mortgage is not a return to the “anything goes” lending mentality that brought about one of the worst financial crises in history. The increase in the FHA minimum down payment is indicative of the administration’s philosophy that owning a home is a privilege and not a right. Those looking to purchase a home with only 3.5% down and no other requirements need to look elsewhere. FHA loan underwriting applies common sense to make sure borrowers can afford to pay back the loan. Its goal of promoting home ownership to qualified borrowers, however, is still being fulfilled.