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FHA Mortgage Rates

In 1934, the National Housing Act established the Federal Housing Administration, or FHA, to help the country recover from the Great Depression by providing mortgage loan program guidelines that require little down, spurring home buying.

FHA Insured Mortgages are the most popular choice for First Time Home Buyers.

FHA loans are one of the three loan programs that are insured by the federal government along with loans guaranteed by the Veterans Administration, or VA loans, and the Department of Agricultures’ USDA program. FHA later became an integral branch of the Department of Housing and Urban Development, or HUD.

FHA Mortgages

Prior to the establishment of FHA, there were no national lending guidelines for loan approval. Banks in Boston, Massachusetts could have different mortgage guidelines than say banks in Glen Allen, Virginia. Not only that, but such loans would require so much cash in the form of a down payment that it restricted homeownership to the very few.

The introduction of FHA mortgage changed all that by establishing universal approval guidelines for qualifying. Now, FHA is the mortgage of choice for those with little money down. In addition, FHA mortgage rates are as competitive as any other loan program in the market today.

Direct Endorsed FHA Lenders

Even though FHA mortgage loans are a popular breed, not every mortgage company can offer FHA mortgages, much less quote an FHA rate. FHA does not issue the ability to issue mortgage loans to just anyone. In fact, FHA requires a considerable net worth, experience and underwriting prowess that few mortgage companies can ever provide.

Mortgage lenders who want to serve the FHA market attempt to obtain the coveted “Full Eagle” status with FHA, which allows a lender to underwrite, approve and fund FHA mortgages.FHA Loan Rates

Therefore, an FHA lender essentially earns the privilege of underwriting and approving FHA loans. Those loans are scrutinized over time for performance. If a lender consistently delivers quality loans they can offer FHA loans at highly competitive rates. On the other hand, lenders who issue FHA loans that eventually go into default will be penalized with higher FHA rates or even have their FHA lending authority revoked by HUD.

When searching for an FHA mortgage with competitive rates it’s important to work directly with an FHA lender who has considerable experience in issuing quality FHA loans. Long-standing mortgage companies with a proven track record have both the experience and financial wherewithal to provide low FHA rates along with a smooth closing.

It is critical when shopping for an FHA loan to ask the lender if it indeed has the Full Eagle, or “Direct Endorsement” status from HUD. If it does not, find a lender who does have this select status. Why is this important? FHA loans are approved in a slightly different manner than conventional mortgages and mortgage companies with little experience with the nuances that FHA loans present are more likely to drop the ball during the approval process.

FHA Loans for Home Purchases and Refinance Transactions

These loans are available not only for a purchase transaction but also for a refinance. In fact, if you currently have a conventional mortgage and your loan balance is approaching your current market value you should explore refinancing from a conventional loan into an FHA loan, as an FHA refinance loan allows for higher “loan to value” limits when compared to conventional loans.

FHA Streamline Refinance

Further, if you already have an FHA loan and want to refinance to a lower rate you can obtain what lenders call a “streamline” refinance. An FHA streamline refinance is an FHA loan that requires less paperwork and reduced closing fees when compared to a conventional loan.

FHA is an Insurance Program

It’s good to note here that the FHA does not issue a mortgage yet establishes underwriting guidelines for lenders. FHA borrowers pay an FHA Mortgage Insurance Premium, or MIP and an Upfront Mortgage Insurance Premium, or UFMIP. These premiums do in fact fund an insurance policy that will reimburse an FHA lender should the loan default, given the loan was underwritten to FHA guidelines.

Mortgage Insurance

This MIP is an additional monthly payment of 1.15% of the loan amount, paid monthly while the UFMIP is paid at the loan closing and is expressed as a percentage of the loan. An UFMIP is 1.00% of the loan amount so with a $100,000 mortgage the UFMIP premium would be $1,000. Yet a unique feature of this FHA closing cost is that this fee may be rolled into the loan amount without any out-of-pocket expense for the fee paid by the borrowers!

FHA Loan Limits

FHA loans also have a unique feature that establishes FHA loan limits. One county may have a higher FHA loan limit than an adjacent one. Typically, the more populous the area, the higher the FHA limit will be. FHA limits in Boston, Massachusetts for example will be higher than for those found in Hartford, Connecticut. Your loan officer will help you determine the maximum FHA limit where you want to buy.

You can visit HUD.gov and check your County Loan Limit HERE

The low down payment requirements, easier qualifying and reduced documentation of FHA loans, regardless of the loan being for a purchase or a refinance, make the FHA loan extremely attractive, especially for those saving up to buy their first home.

When you combine these features along with the low FHA rates that are as competitive with any other mortgage product on the market today, you’ll be hard pressed to find a better solution to your mortgage needs.

 

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