FHA loans aren’t loans!

HUD approved lender

It may come as a surprise to many of you that an FHA loan is not really a loan.  Yes, really.  Let me clarify:  FHA does not loan money. They insure mortgage loans that meet their criteria.  Therefore an FHA loan is not a loan from FHA, It’s an insurance policy on a mortgage loan from FHA.

HUH?

(Don’t worry, this is what I said the first time I heard this!)

Lenders will not lend their money unless they have some protection against losses due to non payment that results in foreclosure.  The most notable protection is a 20% or larger down payment.  The other is PMI or Private Mortgage Insurance (do not confuse this with home owners insurance.PMI insures the lender not you.)

strong>PMI is insurance designed to pay a lender for lossesincurred when a borrower stops paying their mortgage payment and goes into foreclosure.  Without this insurance borrowers would have to have a 20% down payment to get a home loan.

An FHA insured mortgage is really nothing more than a US Government funded mortgage insurance, regulated by HUD and administered by FHA.  The loans FHA will insure usually have more flexible and lenient requirements than conventional (non government) loans.  You can find a lot of information on the multitude of loan products that are insured by FHA.  What lenders don’t talk about are the types of properties FHA will NOT insure. 

FHA will not insure mortgages on 

• commercial enterprises

• boarding houses

• hotels and motels

• tourist houses

• private clubs

• bed and breakfast establishments, or

• fraternity and sorority houses

Feel free to contact us with any FHA or mortgage questions