FHA Mortgage Insurance
(Definition)- Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the longer the loan term, the longer the fee must be paid.
More about FHA Mortgage Insurance
If a home owner fails to make his or her payments, that person goes into default. Lenders protect themselves from borrowers defaulting on their mortgages with mortgage insurance.
The Federal Housing Administration offers mortgage insurance in hopes that lenders will be more willing to give agreeable terms and rates on loans because the mortgages would be backed by a federal agency. Similarly, FHA mortgage insurance programs seek to help people with low credit scores achieve their financial goals. Some lenders require a down payment of 20 percent or more in order to get a mortgage. If a potential borrower cannot make a down payment of 20 percent or more, a lender will require private mortgage insurance, or PMI. With FHA mortgage insurance, lenders can offer mortgages to borrowers with down payments of 3 percent or more.
The most commonly used FHA program is the single-family mortgage insurance program, which is available all over the United States as long as a home meets HUD Minimum Property Standards and there is a viable market for the property.
