This program is known as FHA (Federal Housing Administration) and has instituted an altogether different set of mortgage lending guidelines. Where conventional banks require 20% down payment, FHA requires 3.5% (up from 3% in 2009 and an even lesser amount in prior years); Enough monthly income (33% required to support PITI payments & 41% to support PITI+R&I debt payments), assets (3.5% DP + closing costs) as well as creditworthiness (640 credit score required by many lenders, but 580 minimum score set by FHA) must also be documented in a similar fashion to the kind of documentation required under conventional guidelines; And because of this difference in how much income & assets and what kind of credit background was required, it could be said that the FHA mortgage type can be described as creative real estate financing program with full verification of what's required to qualify for a FHA mortgage loan.

After the enactment of FHA and then Fannie Mae, mortgage lending had begun the rise as profitable and reliable investments in the mortgage financing industry (mostly savings & loan banking institutions) but, as mentioned above, many who wished to purchase a home could hardly afford one until these two agencies were created and later the VA (Veteran's Administration) Loan Guarantee program, intended specifically for World War Two veterans and their wives. There was more competition in the real estate financing market and home loans were now referred to in terms of the type of mortgage home buyers qualified for instead of the type of borrowers mortgage banks were willing to lend to (when many borrowers did not get mortgage loan approvals despite their qualifications) based solely on the bank's discretion and/or prejudices.

With more competition in the mortgage industry came more risk-taking, not recklessness in the early days, but risk-taking which meant that the huge increase in mortgage applications being taken by lenders approved to issue FHA-insured and VA guaranteed mortgage loans (VA loans had to be approved and stamped by the Veterans Administration) and loans closed was mortgage business that perhaps included a number of applications that may have otherwise gone to the savings & loans were it not for the restrictive lending policies and guidelines they adhered to. Despite this noticeable spike in mortgage business being done all around him, the conventional (traditional) mortgage lender was in no hurry to change his lending policies and guidelines, so changes to the conventional (traditional) mortgage loan did not occur as quickly as expected by some industry professionals.

FHA, VA, and PMI (Private Mortgage Insurance) were the other widely recognized mortgage loan programs on the market where the conventional mortgage loan was established as the traditional mortgage type... The mortgage prototype, if you will. Each of these programs deviated from the qualifying requirements and guidelines set forth by the conventional mortgage loan, except that PMI loans were based almost entirely on the conventional mortgage lending guidelines but differed in the LTV (Loan-to-Value) ratio which could be as high as 95%, thereby requiring a home buyer to make a down payment in as little an amount as 5% of the purchase price or appraise value (whichever is less) of the home s/he was purchasing. Continued...

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FHA Mortgage Loan

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In past decades, it was believed that a FHA mortgage loan was a FHA mortgage loan no matter what type was chosen, because they weren't many options available. But that is not true anymore because of the many FHA mortgage loan products available today. So before choosing a FHA mortgage loan, it is very important to decide which one is right for you.

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Finding the right FHA mortgage loan means balancing your mortgage options with your housing requirements and financial picture, now and in the future. Also the right FHA mortgage is not just having the lowest interest rate but much more than that;. And this “much more” will be determined by your personal financial picture. Whether or not your financial picture reflects an ability to pay FHA mortgage payments on a monthly basis can be evaluated by answering the following questions:
  • what does my current finances look like? Income, savings, reserves, debt, etc.
  • Is my outstanding debt payments a large percentage of my income?
  • Do I expect my finances to change in the coming months and years?
  • Do I plan to or will I be able to payoff the mortgage loan before I retire?
  • How long do I intend to keep my home anyway?
  • Will I be comfortable with an adjustable (rate?) mortgage payment?
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The answers to these questions will provide basic information which may help you to better determine your financial picture and home buying ability. Your next step is to decide on two key options:
  • Mortgage length, and
  • Type of interest rate (fixed interest rate or adjustable interest rate).
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The length of a FHA mortgage loan is generally a minimum 15 years; but can be 20, 25, or a maximum 30 years (some lenders have offered 40 and 45 year terms, but they weren't, and still aren't very popular). While selecting a fixed or adjustable interest rate you should be aware of certain facts. 1) The adjustable interest rate on a FHA mortgage is more risky because the rate will change. 2) The fixed-rate loan offers more stability because it is locked-in after closing.

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Although you will be able to pay off a shorter-term loan more quickly, you must be sure that you can comfortably afford to pay the higher monthly payments before opting for the 15 year term. Long-term fixed-rate loans are popular because they offer certainty, and many people find that the payments are easier to fit into their budgets. Although, in the long run 30 year loans will cost you more in interest, you will have more available capital during the loan term when you need it, and you will be less likely to default on the loan should an emergency arise.

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In view of the above mentioned considerations, it is clear that the key to selecting the right FHA mortgage loan is how the new debt fits into your overall financial picture. Having payments fit comfortably within your budget is most important when taking on a big-ticket item expense such as a FHA mortgage loan.

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