FHA Mortgage Loans Are Popular for Refinancing and Home Purchases

Posted by  on Feb 08, 2010

Current mortgage rates have many homeowners rushing to apply for a mortgage for a new purchase or refinance. Many of those borrowers are interested in mortgages insured by the Federal Housing Administration (FHA). In fact, there were three times as many FHA-insured mortgage loans in 2008 as there were the previous year, according to a Federal Reserve report. Here are some reasons FHA loans have been so popular.

FHA Mortgage Loans Allow Smaller Down Payments

Borrowers who have less money saved up have a better chance these days of qualifying for an FHA mortgage loan. That's because these loans allow down payments as low as 3.5%. People who've lost a lot of home equity but still have good credit may find more success refinancing with an FHA mortgage than other types of loans.

Your also can wrap most of your closing costs into an FHA mortgage. The mortgages are also popular because gifts can be used for down payments and closing costs, there are no prepayment penalties, and they may be assumable.

Cons of FHA Mortgages

Despite their appeal, FHA mortgage loans aren't for everyone. If you need a very large mortgage loan you're out of luck since the maximum loan limit is $729,750, and that's only in very high-cost areas. FHA loans also require you to have mortgage insurance, which increases the monthly payment. People with excellent credit may find the best mortgage rates from Fannie Mae or Freddie Mac lenders.

The Future of FHA Loans

FHA has come under scrutiny because of an increasing number of defaults on mortgages, according to the Washington Post. There also has been a warning that FHA may ultimately be headed for a taxpayer bailout in a few years because its reserve fund is so low. FHA officials say that won't happen. In the meantime, FHA mortgage loans still remain attractive to many borrowers looking to refinance or purchase a home.


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