Many major U.S. banks, including Well Fargo & Company, U.S. Bancorp, Bank of America and Flagstar Bancorp, offer Federal Housing Administration (FHA) loans. FHA loans are specifically designed for first-time homebuyers and low-income individuals to qualify for bank mortgages since these loans are insured by the U.S. government.
The FHA loan program is administered by the U.S. Federal Housing Administration. FHA loans represent federal assistance for lower-income families to borrow funds to buy homes for which no bank would have otherwise issued mortgages. FHA loan beneficiaries must pay an upfront mortgage insurance premium, which is equal to 1.75% of the base loan amount. Afterwards, a borrower must pay monthly insurance premiums; rates depend on the loan amount and the loan-to-value amount.
FHA Loan Features
The U.S. Federal Housing Administration only insures loans obtained through approved financial institutions. A prospective borrower should inquire if his bank participates in an FHA loan program. Since each bank issues FHA loans using its own rates and terms, individuals are encouraged to shop around before settling on a particular FHA-approved lender.
FHA mortgages typically require low down payments and have wider qualifying criteria. Also, FHA loans can be suitable for individuals with lower-than-average credit scores or with no formal credit histories at all. Borrowers can choose between fixed-rate and adjustable-rate FHA loans. FHA mortgages do not have a maximum income limitation, and borrowers can prepay their loan balances with no prepayment penalty. Also, if an original borrower sells a house with an FHA mortgage, a new buyer can take over his FHA loan.