Summary of FHA 203B mortgage features

There are a few things to know about standard FHA loans.

*Minimum down payment requirement: Currently homebuyers who use FHA mortgage financing to buy a home can put as little as 3.5% down and borrow the remaining amount.

*Down payment may be gifted: FHA is one of the few programs that allows the entire down payment to be gifted from a family member even if the down payment is less than 20%.

*Seller may pay settlement charges: Currently the seller may pay up to 6% of the sales price towards a homebuyers settlement charges.

*Higher debt-to-income qualifying ratios: FHA is a little less restrictive than conventional financing when it comes to approving an application on the basis of an applicant’s debt-to-income ratio (DTI=sum of proposed housing payment + other monthly obligations/ gross qualifying income).

*Mortgage Insurance: The one major downside of FHA loans is that the associated mortgage insurance is expensive.  Currently purchasers who utilize a FHA loan to buy a home finance an upfront mortgage insurance premium (UFMIP) equal to 1.75 % (as of April 1, 2012) of the base loan amount and still pay a monthly premium that is equal to .1000-.1042% (as of April 1, 2012) of the base loan amount depending on the down payment.  For example, a FHA $200,000 purchase with a 3.5% down payment would carry an UFMIP of $3,378 and monthly premiums of $201.04.  A homeowner with a FHA loan must keep the mortgage insurance for at least 5 years.  After that time they will be eligible to have the mortgage insurance canceled once the loan balance drops below 78% of the initial purchase price (or initial appraisal if it was less).

*Loan are assumable: One of the coolest features about a FHA loan is that it is assumable.  This means that when a FHA loan holder goes to sell their property they can sell the home with the mortgage on it so long as the buyer qualifies for the existing mortgage.  This is a very attractive feature given the current level of interest rates.  FHA borrowers are encouraged to read the small print closely because having another party assume your mortgage may not release them of personal liability.

It is likely that some of these features will change with time so please confirm this information with a mortgage originator when applying for a FHA mortgage.