Mortgage Basics: Information for First Time Home Buyers

What is an FHA mortgage?

Federal Housing Administration (FHA) programs are loans insured by the FHA which allow a buyer to buy a home with only a 3 percent down payment. These programs allow the entire down payment and closing costs to be gifted from a family member. These programs also allow borrowers with past credit challenges such as late payments, collections, or even bankruptcies to buy a home after maintaining at least 12 months good credit history. FHA loans allow buyers to qualify for a larger loan by allowing higher debt to income ratios, co-borrowers who don't live in the home, and lower initial interest rates. They also allow the sellers to pay all closing costs. The downside to these loans is that the loan limit varies and there is a mortgage insurance premium (usually about 2.25 percent of the loan amount) which is added to the base loan to calculate the total loan amount.