HUD Articles

The Value of an FHA Mortgage

By Tom Nelson, HUD LLB-Real Estate One-Rochester, MI

Buying a HUD Property Series Number 7

We all know that there are different kinds of government backed mortgage loans as well as banks and credit unions.  These include conventional, FHA, VA, Fannie Mae, Freddie Mac, USDA and other lesser-known ones. 

The focus of this article is on FHA Mortgage Loans and the value they have over conventional and similar mortgage loans.

First, FHA loans have a primary purpose of getting people to own their own home.  The FHA is mostly to help on first time home buyers and those of lower incomes.  They have lower credit score qualifications and allow for more people to qualify.

Second, FHA mortgages allow for escrow of funds for repairs and appliances in two categories FHA 203B and FHA 203K. The 203B escrow of funds for repairs and appliances. FHA 203B was raised from $5,000 and now allows for repairs or appliance purchases up to $10,000.  FHA 203K is for amounts over $10,000.

Finally, and perhaps as important, but not as well known is that FHA mortgages are assumable.  That means that a person who wants to buy a home where mortgage rates are above 7% can assume a home mortgage on an FHA home at the rate of the current mortgage, which may be as low as 4%.  This allows a buyer to get more a home of higher value at the same monthly payment. 

For instance, the loan monthly payment on $200,000 at 7% for 30 ears would be $1330.  For the same monthly payment of $1330, if a buyer assumed an FHA mortgage at 4%, they could buy a home for $235,00 and have about the same payment.  Consequently, having a transferable lower rate mortgage adds value to the seller and allows the buyer to get a more expensive home

Copyright Tom Nelson DASAT Properties, LLC 2023