Preferred Home Finance, LLC

The Department of Housing and Urban Development (HUD) operates the Federal Housing Administration (FHA), which administers the government home loan insurance program. This program allows a first time home buyer, who might otherwise not qualify for a home loan, to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.

FHA 203(b): The most popular FHA home loan program for a first time home buyer is by far is the 203(b). This is your standard fixed rate loan for 1-4 family owner occupied houses and only requires a minimum of 3% from the borrower. This loan also permits all of the 3% required, to be a gift from a relative, non-profit organization, or government agency.

Advantages of an FHA Home Loan: Credit criteria for a first time borrower is not as strict as the criteria for Conventional Loans. Someone who may have had a few credit problems should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing another person to take over the payments of the loan. In addition, the seller or lender must pay for part of the "traditional" closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. The monthly mortgage insurance premium is cheaper for an FHA loan than for a conventional loan with 3% down. Finally, FHA loans may require less income to qualify.

Many people make the mistake of assuming that FHA loans are only available for first time home buyers. This is not true. FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home. If refinancing a home, the current loan DOES NOT have to be an FHA loan.

The greatest disadvantage of FHA home loans is that FHA limits the size of the loan. Some mortgage professionals may try to convince you that the FHA mortgage insurance premium (MIP) is a disadvantage. However MIP is just a very small increase in the borrower's month payment and is partially refundable in certain cases.