Q. My wife and I are considering buying our first home this summer. The only thing we have done so far is poke around the Internet to learn about the process. It appears that an FHA loan is the most suitable for us because we don’t have a lot of cash for a down payment. I’m wary of programs sponsored by the federal government. Would you recommend an FHA loan to a first-time homebuyer?
A. As a matter of fact, I would – not necessarily because you’re a first-time homebuyer, but because it would allow you to purchase the home with a low down payment. During the housing boom, FHA loans were largely replaced by more attractive conventional loans that offered little or no down payment. Since the mortgage meltdown, FHA loans have regained favor.
Let’s review the details of an FHA loan. First, it is not a government-sponsored program. FHA loans are insured by the Federal Housing Administration, a division of the Department of Housing and Urban Development. The mortgage insurance provided by FHA entices lenders to make FHA loans. FHA loans have been available since 1934.
Perhaps the first thing to say is that U.S. taxpayers do not foot the bill to pay for the insurance to cover FHA loans that go sour. FHA is a self-funded program because borrowers are required to pay a mortgage insurance premium (MIP).
The insurance is paid in two ways: An upfront fee of 1.75 percent is charged and usually is added to the loan amount, and 0.55 percent of the loan amount is charged annually and paid in monthly installments with the mortgage payment.
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Oh! This is great! Thank you for countering a few
misconceptions I had heard on this recently.