What is FHA Insurance?

What is FHA Insurance?
Mortgage insurance is a policy that is used to protect the creditors from incurring losses that usually result from defaults on home mortgages and is needed particularly for those debitors who have made a down payment of less than 20%. FHA (Federal Housing Administration) insured mortgages require mortgage insurance. The home owner needs to pay a mortgage insurance charge of 5% per year on the loan amount; along with this, the FHA charges an upfront mortgage insurance premium of 1.5%.

If any of the conditions occur, FHA’s monthly mortgage insurance payments will automatically be completed:
► In those mortgages which have tenure of more than 15 years, the annual mortgage insurance premium will stand cancelled when the ‘Loan to Value’ ratio reaches 78% on the condition that the mortgagor has paid the annual premium for at least 5 years.
► In cases of those mortgages with tenures of 15 years and less, the annual mortgage insurance will be terminated when the ‘Loan to Value’ ratio reaches 90%. This is regardless of the amount of time the mortgagor has paid his premiums.
► For mortgages with the terms 15 years and less and with Loan to Value ratio of 89.99% and less, annual insurance mortgage premiums will not be charged.
If you have a FHA or HUD insured mortgage, you might be eligible for a refund of part of your insurance premium or get a share of any extra earning from the FHA’s Mutual Mortgage Insurance Fund.

It is a dream of almost every man in the United States to have their own homes. But unfortunately, very few have the capacity to pay cash and make a buy. For those families who do not have the financial condition to afford their own houses, FHA mortgage insurance programs come to help.
These mortgage insurance programs are aimed to help the middle and the low income groups by helping them to get finance to buy homes or refinance their current mortgages. The FHA mortgage insurance gives the buyer an opportunity to make a low down payment and get a mortgage loan for the balance of the purchase price. The mortgage loan is made by a HUD approved creditor like a bank, a mortgage company or a credit union. FHA insures the mortgage and even pays the creditor if there is a default of payment on from the debtor’s part. However, it is to be remembered that FHA or HUD does not provide loans directly who wants to build, buy or refinance homes.

Who are eligible to get a FHA mortgage insurance loan?
Anyone with a satisfactory credit record, adequate bank balance to close the loan and enough monthly income to make the monthly mortgage payments can qualify to get such a loan. To get all the details, it is suggested that you visit your nearest HUD approved housing counseling agency or HUD approved lender.

How will FHA mortgage insurance help you?
If you are planning to buy a new home or making changes in your present one or refinancing your current mortgage, it is recommended that you work with a HUD approved lender such as a bank, a mortgage company or a credit union and apply for a loan. Once the loan is approved, FHA will insure it and also pay to the lender if you default on the mortgage. Besides, since the creditor is protected by FHA insurance, he will give you the best possible terms and conditions.

Lower down payment – unlike a few creditors that require a down payment of 10% or more of the price of the home on cash, FHA insured mortgages require down payments as low as 3%. You may have to furnish the lender with adequate details to prove that you have enough money to pay for the loan down payment.

Using cash gifts towards down payment – in some situations, with an FHA insured mortgage, you can use cash gifts from your relatives or some local non profit organizations or government agencies to pay the down payment partly or fully.