What is an FHA mortgage?

There actually aren't any “FHA mortgages.”  The Federal Housing Administration (FHA) doesn't write mortgages. What the FHA does is guarantee a mortgage for a lender.  The mortgage should be called an FHA-insured mortgage.

The FHA is the largest insurer of home loans in the world.  The agency was formed in 1934 by then president Franklin Roosevelt.  It was created to promote home ownership and to aid in the formation of stable communities.  In 1965, the FHA was rolled into the Department of Housing and Urban Development.  It has insured more that 34 million homes and properties since its formation.  Currently there is more than $1 trillion in home loans.

Here are some reasons FHA insured mortgages are so popular:

• An FHA insured mortgage will allow a 3.5% down payment.
• The interest rate for an FHA insured mortgage is sometimes a half point lower interest rate than other insured loans.
• The FHA does not assess risk based pricing for condominiums, 2 unit homes, or for credit scores below 740.
• An FHA loan can be easier to qualify for.

Is there a downside?  Well, maybe.  An FHA mortgage comes with strict guidelines for the condition of the property.  The administration requires that each home meet more stringent safety and habitability requirements then most lenders would require. This makes it more difficult to get a home approved for a mortgage, but means, the homeowner gets a better home.  

For information on an FHA loan contact your mortgage lender or call me for more information.

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.