FHA Information for 1-2 Family Residence:

The Federal Housing Administration (FHA) is part of the U.S. Dept of Housing and Urban Development (HUD). The terms FHA and HUD are used interchangeably within the housing industry.

FHA insured mortgages are not supported by tax dollars. An insurance premium is collected from the borrower and paid to FHA. FHA holds the premiums in several different pools of funds. In the event a borrower defaults on the mortgage, the lender forecloses on the property, FHA pays the lender for the amount of loss and the lender conveys the property to FHA.

The FHA down payment requirement is typically 3-4%, where a Conventional loan will require at least 5%. FHA doesn't require cash reserves and Conventional will require 2 months reserves. FHA loans are assumable with qualification, most fixed rate conventional loans are not assumable. FHA will consider isolated, derogatory credit and nontraditional sources of credit, when in most Conventional cases the borrower cannot have any signs of recent derogatory credit. FHA does not consider credit scoring when approving a borrower and scores are greatly considered on a Conventional loan.

Overall the FHA program makes purchasing a home much easier. A summary of benefits would be:

1. The borrower doesn't need as money "verified".

2. The borrower has the ability to purchase with little or no personal funds.

3. The borrower doesn't need reserves.

4. The loan is assumable, possibly making the sale of the home easier.

5. The borrower can still qualify for the loan with some derogatory credit and/or low credit scores.