In the 1930s, the federal government realized that down payment requirements were preventing many people from buying a home - especially a first home. They created the Federal Housing Administration (FHA) to help with this problem. FHA does not lend money. It ensures lenders against loss on loans when greater than 80% of the purchase price is borrowed.
An FHA-insured loan can be as high as 96.5%, allowing the borrower to put only 3.5% down. If the lender must foreclose, FHA pays the difference between the normal loan amount - 80% - and the actual loan amount.
There are costs associated with an FHA loan called Mortgage Insurance Premiums (MIP). They take the form of an initial premium and an annual premium. The initial premium can be added to the loan amount rather than being paid out of pocket. There are maximum loan amounts for FHA insurance. If you think an FHA loan might fit your needs, contact us at 1-888-418-BANK or email@example.com for more details.