How do FHA Loans Work?

The Federal Housing Administration (FHA) has several programs to help folks with homeownership.  An FHA loan is a loan insured against default by the government.  Because of this guarantee, lenders in this day and time are more interested in making FHA loans than ever!

FHA loans are not for everybody.  However, they are great loans for the right people.  FHA charges borrowers an upfront mortgage insurance premium (MIP), which works just like PMI.  Meaning that the “insurance” is really an insurance to the bank, in the event that you don’t make your payments.

The insurance rate is set by FHA, and is determined at the time you apply.  This upfront premium does not need to be paid in cash, and is normally added to your loan amount. Meaning that if your BASE loan is $100,000 and your upfront insurance premium is 1.75%, then your TOTAL loan (what your payments are based on) is $101,750.

They also charge a MONTHLY insurance fee, which is sometimes called “Annual” mortgage insurance.  You take the monthly fee and divide it by 12 to determine the monthly charge – like upfront  MIP, the monthly charge is determined at the time you apply (because FHA has changed these rates 9 times in the past 3 years).

For more information on FHA’s version of PMI, or, to find out if you qualify for a FHA Loan in Raleigh, please call Steve and Eleanor Thorne, Best Mortgage Rates in Cary NC, 919-649-5058