FHA-insured loans

FHA insures; an approved lender lends

The Federal Housing Administration, or FHA, is part of the U.S. Department of Housing and Urban Development. An FHA-insured mortgage is made by an approved lender. FHA insurance protects the lender against covered losses from borrower default; it does not pay the borrower's debt as a personal benefit or protect the home's market value. Section 1709 authorizes this federal mortgage insurance. Florida buyers use the federal program, not a separate Florida FHA program.

Qualification and costs

FHA financing can help qualified buyers who have limited down-payment savings. It is not restricted to first-time buyers. For ordinary home-purchase financing, the borrower must meet credit, income, debt, and occupancy requirements, and the property must meet applicable appraisal and condition requirements. A buyer generally occupies the home as a principal residence. Eligible residential properties can include one- to four-unit homes and qualifying condominium units. Insurance does not remove underwriting.

The loan is subject to applicable mortgage limits, which depend on area and property size. Borrowers and lenders negotiate loan pricing; FHA insurance does not mean that all lenders quote the same interest rate. Mortgage insurance premiums are distinct from interest, property taxes, homeowners insurance, and the down payment. Ordinary FHA purchase loans generally involve an upfront premium and an annual premium collected through monthly payments. Financing an eligible upfront premium increases the loan balance; it does not make that cost disappear. Check current program terms with the lender because limits, premium schedules, and eligibility details can change.

Appraisal, assumption, and rehabilitation

An FHA appraisal addresses value and applicable property acceptability requirements. It is not a substitute for the buyer's independent home inspection and does not warrant that the property is defect-free.

An FHA mortgage may be assumable, subject to applicable requirements. A purchaser's taking over payments does not itself establish approval or release the original borrower. Section 1709 requires creditworthiness review in covered ownership acquisitions and procedures for advising an original borrower about release from liability when personal liability is assumed. Distinguish assumption of the debt from release of the seller.

Section 203(k) rehabilitation financing can combine qualifying repairs with a purchase or refinance of a one- to four-unit residential property. Its purpose is rehabilitation, not an unrestricted cash advance. Special disaster provisions also exist; they should not be confused with the ordinary purchase program.

For the exam, connect three roles: the lender supplies the loan, the borrower owes repayment and bears financing costs, and FHA provides mortgage insurance to the lender.