In 1965 the Department of Housing and Urban Development (HUD) was formed. Within HUD operates the
Federal Housing Administration (FHA), which has the primary responsibility for administering 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.
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 3.5% from
the borrower. This loan also permits 100% of their money needed to close to be a gift from a relative,
non-profit organization, or government agency.
The main advantage to a FHA home loan is that the credit criteria is not as strict as Conventional Loans
sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have had a few credit problems
or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans are
assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new
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 verses a conventional loan with 3%
down. Finally, FHA loans may may require less income to qualify as they will exceed the Conventional
debt ratios of 28/36% as their standard is 31/43%.
Many people make the mistake and assume 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
The greatest disadvantage of FHA home loans is that FHA limits the loan size that a borrower can
borrow. Please see the link for FHA Loan Limits in your area. Others may try and convince you that the
FHA upfront mortgage insurance premium (MIP) is a disadvantage. However this amount makes just a
very small increase in the borrower's month payment and is partially refundable.
Originating, processing, underwriting, and closing all take place in our 3000
square foot Lockport IL facility. Stop by for a tour and meet the staff.
The Rehab Man (312) 401-5626
Questions about rehab financing? Call The Rehabman (312) 401-5626
Jay Boetscher "The Rehabman"
Phone: (312) 401-5626
Fax : (847) 701-3280