The Federal Housing Administration (FHA) provides mortgage insurance on loans offered by approved FHA lenders. It insures loans on single family and multi-family homes. As the largest insurer of mortgages in the world, it has become one of the most popular financing vehicles in recent years, offering many benefits to the borrower.
The most common of the FHA loans is known as the 203(b). This is considered the “basic” FHA loan and the most popular of all FHA offerings. FHA also insures the 203k Rehab Loan and Energy Efficient Mortgages. It’s widespread use and borrower choice has increased dramatically in recent years with the death of the subprime loan.
The 203(b) loan can be structured as a fixed rate mortgage or an adjustable rate mortgage (ARM) loan. This insured loan can benefit the home buyer who does not have perfect credit and is in need of a low down payment option. There is also more flexibility in calculating household income and debt-to-income ratios, that other financing options may not allow. Finally, FHA does not restrict the program to first-time home buyers only. Any qualified borrower may utilize these loans for financing.
The biggest detractor to the FHA loan is the requirement for an upfront mortgage insurance premium. Currently at 1%, this insurance premium is rolled back into the loan. In addition, the annualized mortgage insurance (monthly premium) is required on the loan for a minimum of 5 years, regardless of equity position.
| FHA Insured Mortgage | Conventional Insured Mortgage | |
| Purchase Price | $200,000 | $200,000 |
| Down Payment | $7,000 | $10,000 |
| Up Front Mortgage Insurance | $1,930 | NA |
| Total Loan Amount | $194,930 | $190,000 |
| Interest Rate | 5% | 5% |
| Monthly Payment | Monthly Payment | |
| Monthly Mortgage Insurance | $147.71 | $148.83 |
| Monthly Principal & Interest | $1,046.43 | $1,019.96 |
Nonetheless, the FHA 203(b) loan can provide a low rate, low cost of entry option to the borrower needing additional credit flexibilities in obtaining home ownership or refinancing their current home. Call an iLoan expert today to find out if the FHA 203(b) is right for you.
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