If you are a first-time home buyer or have bought a home before and have less than perfect credit you have come to the right place. At FHA Loan Houston.com, our Home Loan experts will take you through the loan process step-by-step.

FHA - small down payment, low PMI, maximum loan depends on your county, insured by the Federal Housing Administration.

While many people deciding on a loan product rely exclusively on their lenders recommendation, you should understand the basic difference between an FHA loan and a Conventional Loan. The term Conventional Loan includes all loans under the current FNMA and FHLMC lending limits.

Most people that have heard of FHA loans tend to associate them with purchase money transactions. While purchases are the most common use, FHA loans are also available for rate and term refinance loans as well as Cash Out refinances.

The main advantage of an FHA vs. Conventional loan is that the credit qualifying criteria for a borrower are not as strict as conventional loan financing and the down payment or Equity requirements are less. In comparing a purchase money FHA loan against a Conforming or A paper loan, the FHA loan will generally have a lower payment. FHA loans will allow the borrower who has had a few "credit problems" or those without a credit history along with those with great credit to buy a home. An FHA Underwriter will require a reasonable explanation of derogatory items, but will approach a person's credit history with common sense credit underwriting. Most notably, borrowers with extenuating circumstances surrounding bankruptcy that was discharged 2 years ago can be approved for maximum financing. Conventional A Paper financing, on the other hand, would require 4 years to have passed to be eligible for consideration.

If a borrower does have past credit issues an FHA loan may have a significantly lower rate than the alternative conventional loan. Conventional programs generally have higher interested rate of require a larger down payment or Equity position. Many of these alternative loan products have Pre Payment penalties where as FHA loan do not have such penalties. In fact FHA loans can be easily refinanced under the FHA Streamline refinance program.

Even though FHA charges an annual renewal mortgage insurance premium of 0.5% or 0.55% depending on several variables, including LTV and credit score. This fee is generally half that charged by Conventional Mortgages.

However, conventional financing does not require an upfront mortgage insurance premium when a borrower closes on the loan. With FHA financing, that fee for a 30 year loan is currently 1.75% of the loan amount that the borrower can wrap into the mortgage.

 

FHA Funding

The funding of FHA is entirely self-generated income and costs taxpayers nothing. The mortgage insurance proceeds that are paid by the homeowners are deposited into an account that is used to operate the program entirely. Huge economic stimulation is provided through FHA in the form of stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.

FHA Today

The FHA became part of The Department of Housing and Urban Development (HUD) in 1965. FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA current portfolio has 4.8 million insured single family mortgages and 13,000 insured multifamily projects. The FHA is the only government agency that is completely self funded. They operate solely with their own income and with no cost to the tax payers. The FHA spurs economic growth in the form of home and community development.

The budget planning for 2008 HUD had projected a $143,000,000 budget shortfall stemming from the FHA program. This is the first time in three decades that HUD has made a request to Congress for a taxpayer subsidy. Even though FHA is statutorily required to budget neutral, the GAO is projecting taxpayer funded subsidies of half a billion dollars over the next three years, if no changes are made to the program.

Currently new budget numbers are projecting "windfall revenues" for FHA due to the collapse of the subprime market and a flood of new loans being originated with FHA.

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