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FHA Mortgage FAQ

Why should I choose an FHA loan?

It will be easier to qualify because your loan is federally insured – especially if you have a mediocre credit history. 

The required down payment is only 3%, and that money can come from a relative, another government agency or a charitable organization.  Standard commercial loans won’t allow down payments like that. 

If you run into real financial problems during the life of your loan, the FHA has several support mechanisms that will help you avoid foreclosure.

How much can a lender charge on an FHA loan?

The FHA does not lend money or set mortgage rates.  It buys loans from the lender and insures them.  The lender sets the interest rate; however the fees for a lower balance loan must not be larger than those charged for higher balance loans.

Does the FHA accept adjustable rate mortgages (ARMs)?

The FHA does allow ARMs subject to these strictures.  The ARM must use the one year Treasury bill as an index; maximum annual rise in the interest rate must be 1% and the cap on total increase in interest over the life of the loan must be 5%.  Hybrid ARMs are that have 3, 5, 7 and 10 year fixed rate terms at the beginning of the loan are also acceptable, subject to defined increase caps.

What is a Graduated Payment Mortgage?

A GPM is a mortgage that provides reduced payments in the early years by carrying over some of the interest into later years.  Compared to a fixed rate mortgage, the GPM’s first five years will have lower payments and the last twenty five years will be higher payments.  It’s a mortgage for people who expect their income to grow substantially in the future.

Can I obtain an FHA loan from any lender?

The FHA does maintain an approved lender list.  You can check a lender’s approval status at http://www.hud.gov/ll/code/llplcrit.html

Are there income and credit rating requirements for an FHA loan?

There is no maximum or minimum income requirement for an FHA loan; however you must meet the lender’s requirements.  There is also no specific floor for credit ratings on an FHA loan.  Lenders make the determination based on credit history and a discussion with the applicant about any past difficulties.