Saved the Bell with FHA Mortgage Insurance

Saved the Bell with FHA Mortgage Insurance

Article by Mortgage Guru

You may have come across the phrase “FHA-HAMP” recently in the newspaper, TV or internet. Does it have anything to do with you? It does if you are having a FHA- insured home mortgage. FHA-HAMP or FHA Home Affordable Modification Program is a federal government program to help homeowners with FHA mortgage to avert foreclosure. If you are in this situation, what are you waiting for? Pick up the phone or go see an FHA approved lender.

The term FHA mortgage can be misleading as FHA does not give out loans directly. It simply means mortgage insured by FHA mortgage insurance. It can be a good tool for more people to have their own home insured, especially first time homebuyers. Let’s say you are getting married soon and want to buy a new home. Well, you finally found one but you can’t buy it because you don’t have the 20 percent down payment required. Should you call off your wedding? Of course not!

This is where the FHA mortgage insurance can help. If you purchase this insurance, you can pay a smaller amount of down payment for your new home or less than 20 percent. In fact FHA allows first time homebuyers to have a down payment as low as 3.5% of the purchase price. It may be easier for you to qualify for an FHA mortgage than for a conventional loan. It gets even better. For the down payment the money can be your own savings, a gift, loaned from family or received from organizations. This is unlike other lenders where the down payment must be from your own savings. You are required to pay an upfront premium and the monthly premium will be included in your loan.

You may want to take note that mortgage insurance whether by FHA or other insurers are not mortgage life insurance policies whereby the mortgage would be paid off should the borrower die. It is not. Mortgage insurance, protects the lender in the event of a default in payment of the loan. You may feel that this type of insurance appears to benefit only the lender because they are being protected while you are paying the premium. If you look at the other side of the coin, without this insurance you can’t own your own home and proceed with your wedding.

It is also important to remember that the FHA mortgage insurance is mandatory for the first five years of the loan with terms of more than 15 years. It cannot be removed even if your home equity has reached 22 percent. Under the Homeowner’s Protection Act of 1998, the conventional mortgage insurance by other lenders will be automatically cancelled once a homeowner has reached 22 percent equity in his home based on the original purchase price. The homeowner can also request to remove the mortgage insurance once their equity has reached 20 percent and they can fulfill certain requirements set by the lenders.

As mentioned earlier, FHA does not give out loans directly but loans insured by the FHA are made by FHA-approved lenders throughout the United States. These lenders offer FHA mortgage loans such as fixed-rate loans, five adjustable-rate loans, rehabilitation loans, and loans for buying a home on an Indian Reservation and also refinance FHA loan.

If you are planning to stay at your home for a long time, the 30-year fixed rate loan may be the most suitable as it offers stable interest rate and stable payments for the entire term. If you have owned your home for a few years and have built up some equity, you may want to consider refinance to help lower your interest rate and pay less monthly installment. Some lenders offer “no cost” refinancing which means you don’t have to pay any out of pocket expenses when taking up the refinance loan but this is offset with a higher interest or added to your loan.

So, if you are looking to own a new home and have less than 20 percent down payment, you may want to consider an FHA insured mortgage. You could find out more information with any FHA approved lenders. It may be advisable to do some research on everything about purchasing a home way before you actually buy a home. It could save you some headaches and heartaches.

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