If you’re thinking about buying a house, and you’re like me, you’re going to do a lot of research.  When my wife and I bought our Austin home in 2007, I scoured the web for good information, talked to home-owning friends and their parents, and read first-hand prep experience (mymoneyblog.com).

Now that we’re happily in our home, I occasionally check for deals in an effort to find a good investment property.  However, regardless of whether you’re thinking of buying, or just learning, you’ll have to bone up on FHA loans, since there’s a pretty good chance this organization is going to insure your mortgage.

FHA stands for “Federal Housing Administration” and rolls up to Dept. of Housing and Urban Development (HUD).  The entire point of FHA’s existence is ensuring the mortgages, so that the lenders still get paid if the borrowers default.  For example, if Chase Bank extend me an FHA loan and then I lose my job and Chase forecloses on my home, FHA will deal with Chase.  That’s really it — here’s the full source of information (Wikipedia.com)

If you ask me, this is a pretty relevant subject nowadays, since everybody and their uncle throws around “socialist” concepts and calling each other “socialists”.  At a risk of offending some people, I consider FHA’s activities a beneficial form of socialism, meaning that everyone helps you when you’re down, and when you’re up, you help someone else who is down … A sort of a “pay it forward” concept, like the healthcare systems in Canada and France.  Another upside is that FHA’s activities cost taxpayers nothing, since they are financed via mortgage insurance it collects until borrowers reach a certain percentage of ownership in the home.

Naturally, it acts as a catalyst for lenders because of the whole “guaranteeing that the lenders get paid” thing.

So what else is good about FHA loans?  Well, the down payments can be lower (as low as 3%), with no pre-payment penalties (great for sub-prime refinancers).

The downside is paying the mortgage insurance, which is where the “socialist” part comes in, so if you have enough cash upfront for a large down payment, you really wouldn’t take the fullest advantage of FHA’s offerings.  Also, it’s more of a middle-class kind of a hookup, so you probably won’t be able to buy a mansion.

I’d start reading at the FHA Mortgage Center site (http://www.fhamortgagecenter.com).  It’s a decent resource with wizards (which I love).  The site uses SSL and has a 1-800 number, so it’s legit in my book.

We have an FHA loan, and our down payment was 10%.  Bank of America actually waived our closing costs, paid our PMI, and gave us 6.25% on a 30-year fixed.  You can review the lending guide at the FHA Mortgage Center site (http://www.fhamortgagecenter.com/fha_lending_guide.html).  By the way, Austin home prices have been kind (knock on wood), and in the first year our home added $15k in value … Not sure how long this is going to go on for, but considering the rest of the country is down by as much as 20%, I’ll take the increase :)

Cya, Max